Market failures and imperfections such as information asymmetries, inadequacy or lack of recognized collateral, high transaction costs for small-scale lending, and perceptions of high risk, all of which lead to lack of access to credit for MSMEs.
Despite adequate liquidity in PNG, financial institutions are often reluctant
to lend to SMEs and when they do the high interest rates charges becomes a barrier for SMEs.
These are some of the reasons highlighted by the Acting Governor for Bank of Papua New Guinea, Benny Popoitai for the need to create the Credit Guarantee Corporation Limited.
The entity was launched today by Prime Minister, James Marape.
Credit Guarantee Corporation Limited (CGC) is an entity established by the Bank of Papua New Guinea with the aim of assisting Micro, Small to Medium Enterprises.
The establishment of CGC was approved by the National Executive Council in 2018, under the Medium Term Development Policy III, to address the lack of access for credit and capital for micro small and medium enterprises in the country.
The Bank of PNG has taken the lead to do the preparatory work and incorporated the CGC under the Company’s Act 1997 on 5th January 2022.
The launch today of CGC is to support it as a legal entity that will support the Government’s policy to develop and grow the MSME sector in order to create new employment, achievement sustainable economic growth, and fair and equal distribution of wealth through majority citizen ownership of business activities.
The CGC will support the MSMEs by working with and through participating financial institutions to provide credit guarantee to financial institutions as a credit risk mitigation to lenders to absorb a portion of their losses on their loans made to MSMEs incase of default to encourage them to lend to MSMEs.
BPNG Chairman, David Toa said the establishment of the CGC is necessary to correct inefficiencies evident in resource allocation in the financial intermediary process of the financial institutions.
“The establishment of the Credit Guarantee Corporation (CGC) brings renewed hope into the MSME sector that has been struggling from the combined lack of basic infrastructure and skill sets that are necessary elements for their growth,” Toa said.
The CGC is a partnership between BPNG and Kumul Consolidated Holdings.
Prime Minister has committed K50million from BPNGs dividends to be held back for CGC.
“I want to encourage the financial institutions to fully utilize the services of the
CGC.
“When small businesses do not have sufficient access to financial products and services, they may be deprived of the opportunity to grow their business, and as a
nation, we lose from the benefits of their potential contributions to the economy,” Marape concluded.
