CGC Malaysia’s Wholesale Guarantee Scheme: Supplementing SMEs’ Access to Finance

The Credit Guarantee Corporation (CGC) Malaysia Berhad and the OCBC Al-Amin Bank in April 2014 launched the first ever ‘Islamic Wholesale Guarantee’ (WG-i) valued at RM 250 million (USD 69 million). This augurs well for the development of the unsecured SME financing business in Malaysia and is best suited for capital improvement and investment needs such as machinery and raw materials, and to support business growth where additional working capital is required.

The innovation of WG-I aims to capture the participation of other financial institutions by providing capital relief in accordance with Basel II while, at the same time, allowing them to obtain additional security to unsecured or partially-secured SME loans. WG-i also provides a new edge for the banking industry by reducing risk on books of financial institutions and freeing up capital to allow increased capacity for more SME financing.

In addition, the strength of WG-i lies in its simple implementation method of providing blanket guarantee on loans already underwritten by the participating financial institution via a thorough understanding on the underwriting standards and performance of such loans. As the portfolio would have been seasoned for a period of time, loan quality is made more predictive, hence no further credit assessment is required upon submission. The financial institution only needs to submit the qualifying accounts per the agreed terms. WG-i also allows better certainty in outreach and fee income as this is derived from a pool of existing customers in the financial institution’s books. The WG-i program has already reached out to a total of 2,297 SMEs since it was launched. CGC and Al-Amin Bank are expecting the demand for wholesale guarantee to increase this year.

The ‘WG-I’ program won the 2015 ADFIAP Outstanding Development Project Awards under the SME Development Category.