SMEs in Thailand Get Credit Benefits with New Agency

In August 2024, the Thailand Cabinet approved the establishment of a new government agency that will issue loan guarantees to applicants and assess their credit risk. Within six months, legislation will be drafted and submitted by the Ministry of Finance and the Bank of Thailand to the House of Representatives to finalize the approval, and the new agency will begin operations.

The creation of this new government entity is the latest in the government’s targeted efforts to invigorate Thailand’s economy in the rocky post-pandemic era.

What is This New Agency?

This new legal state-controlled agency is known as the National Credit Guarantee Agent (NaCGA). The NaCGA will provide loan guarantees by assessing the credit risk of loan applicants, including small and medium-sized enterprises (SMEs).

In effect, Thai SMEs should have easier access to credit, enabling them to more easily secure loans to keep their operations running in the crucial early stages of the venture or during times of bad business.

Why is This Agency Being Created?

The NaCGA was created to completely overhaul the current credit guarantee system, making it easier for SMEs to apply for loans from financial institutions. According to a statement from the Central Bank of Thailand, less than half of Thailand’s 3.2 million SMEs currently have access to such loans. The government sees improving credit access for small and medium-sized businesses as essential to reviving Thailand’s stagnant economy. 

Under the current credit guarantee system helmed by the Thai Credit Guarantee Corporation (TCG), financial institutions assess the credit risk of their own clients before approving them for loans. If a SME has high credit risk, they are referred to the TCG to acquire a guarantee certificate. 

However, under the new agency, the NaCGA will conduct the credit assessment and issue loan guarantee certificates itself, meaning financial institutions will receive the guarantee without having to refer high-risk SMEs to the TCG. This should lead to many more SMEs being approved for loans in a more timely fashion.

What Benefits Will the New Credit Agency Provide to Small and Medium-Sized Businesses?

SMEs looking to apply for loans would benefit greatly under this new system as they just have to apply for a guarantee through the NaCGA. After being assessed, business representatives simply have to present the guarantee certificate to any financial institution to receive a loan, with no additional assessments needed. 

The NaCGA also functions similarly to an insurance firm as it provides financial risk insurance to SMEs, even those with high credit risk. This significantly improves the chances for loan approval, reassuring the lender that, even if they fail to repay it in time, the NaCGA will cover a portion of or all the financial losses. Financial institutions throughout Thailand will also extend the duration of loans to SMEs that possess financial risk insurance. 

The NaCGA’s credit guarantee system also utilizes risk-based pricing as part of its credit assessment process. This means that they will evaluate factors such as the borrower’s credit history and income before charging them. The lower the credit risk and the more likely an SME can repay the loan, the lower the fees. This approach also reduces the state’s budget burden and is more efficient than the current portfolio guarantee method utilized by the TCG. 

How Will the NaCGA Work?

With the new system in place, representatives of an SME will need to contact the NaCGA to apply for a loan guarantee. The agency does this through its own verification, risk assessment, and fee calculation procedures. After evaluating the company’s credit risk, they will charge a small fee to the applicant, calculated based on the SME’s risk level. 

Once this fee has been paid, the applicant will receive a guarantee certificate as well as financial risk insurance, courtesy of the NaCGA. With this certificate, SMEs can apply for loans at financial institutions all around Thailand, and this document can be presented to them as evidence of their risk assessment results. 

Contact Siam Legal International to Take Advantage of These New Benefits

The creation of this new agency for SMEs means that this is the best time to launch your own business in Thailand. If you have any plans for opening a company in Thailand and taking advantage of these new credit benefits, then reach out to Siam Legal’s Thai Corporate Lawyers for further assistance. As a full-service law firm with over 20 years of experience supporting businesses, our staff has the skills and knowledge to help you set up your company as smoothly as possible.

Contact Siam Legal today to get started.

Category: Business in Thailand