Regional Development
Credit Guarantee Schemes
In accordance with Section 108(1) of the Monetary Law Act No.58 of 1949, the Central Bank of Sri Lanka (CBSL) acts as the agent of the GOSL or acts on behalf of the GOSL in guaranteeing the loans granted by banking institutions, which are qualified to receive guarantees under special development programmes. An amendment was made to Section 108 of the Monetary Law Act as 108A in 1974 to extend the guarantees to loans, advances or other accommodation granted to small-scale enterprises by credit institutions operating in Sri Lanka. This has facilitated the operation of guarantee schemes by the CBSL in respect of loans granted to small enterprises and agricultural activities.
Objective
Provision of credit guarantee coverage to Participating Credit Institutions (PCIs) and Participating Financial Institutions (PFIs) to cover a part of their credit risk. The Regional Development Department (RDD) has been assigned with the responsibility for the implementation of such credit guarantees issued by the CBSL. The RDD on behalf of the CBSL and GOSL implements twelve (12) Credit Guarantee Schemes to provide guarantees under donor funded and GOSL sponsored credit schemes.
Source of funds :
| (a) |
Seed funds received from CBSL/GOSL |
| (b) |
Premia collection from PCIs/PFIs |
| (c) |
Investment income |
Seed funds received under (a) above are as follows
CBSL funded Credit Gurantee Schemes :
| (i) |
Credit Guarantee Scheme under Small and Medium Scale Industries |
(SMI) |
| (ii) |
Credit Guarantee Scheme under Small and Medium Enterprise Assistance Projects |
(SMAP) |
| (iii) |
Bus Purchase Loan Scheme |
(BPL) |
| (iv) |
Agriculture Rehabilitation Project Credit Schemes |
(ARP) |
| (v) |
Susahana Credit Guarantee Scheme |
(SUSAHANA) |
| (vi) |
Perennial Crops Development Project Credit Scheme |
(PCDP) |
| (vii) |
Small Holder Tea Development Credit Scheme |
(SHTDP) |
| (viii) |
Plantation Sector Reform Project |
(PSRP) |
GOSL funded Credit Guarantee Schemes
| (i) |
New Comprehensive Rural Credit Scheme |
(NCRCS) |
| (ii) |
Tea Development Project Credit Scheme |
(TDP) |
| (iii) |
Second Perennial Crops Development Credit Scheme |
(SPCDP) |
| (iv) |
Apparel Sector Guarantee Scheme |
(Apparel) |
Operation of Credit Guarantee Schemes
Implementation of a Credit Guarantee Scheme is more or less similar to implementation of any insurance scheme. According to the terms and conditions of the Credit Guarantee Schemes, the respective PCIs are responsible for undertaking certain activities including the following.
| a ) |
Proper appraisal of projects for establishing their economic and financial viability. |
| b ) |
Obtaining prior approval from CBSL/donor agencies, as required, in respect of loans beyond a certain limit. |
| c ) |
Taking sufficient securities in accordance with the Operating Instructions issued by the CBSL. |
| d ) |
Observing necessary care and prudence in disbursing the loans and submitting position reports to CBSL on loans which have fallen into arrears every 6 months and taking steps to minimize any losses to PCIs, until a claim is lodged. |
| e ) |
Once the CBSL issues a guarantee, sustaining the validity of the guarantee cover by making timely and continuous payment of premia and providing required documents to CBSL. |
Credit Guarantee claims of the PCIs in respect of loans in default will be entertained by the CBSL only after the PCIs have initiated legal action against the borrower to recover the loan. After the settlement of the claim, any money recovered by the PCI is to be shared with the CBSL immediately upon the receipt of such amounts.
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