The Eastern Caribbean Partial Credit Guarantee Corporation was created in response to the contraction of credit in the OECS banking system, and the need for MSMEs to have access to credit to grow their businesses. The project is a collaboration between the Eastern Caribbean Central Bank and the World Bank which has provided loans to select member countries and would also provide technical assistance to the project. The participating governments are Antigua & Barbuda, Dominica, Grenada, Saint Kitts & Nevis, Saint Lucia, Saint Vincent & the Grenadines. All governments, except for Saint Kitts, have received loans of US$2m from the World Bank.
- We provide guarantees to financial institutions in the Organization of Eastern Caribbean States (OECS) that lend to Micro, Small and Medium Entrepreneurs (MSME’s).
- We build capacity among the lending officers of the participating financial institutions.
- We support entrepreneurs in the areas of Business Planning, Financial Management, and Marketing.
- We research, compile and provide insights and information on developments in the financial ecosystem to our audiences.
- The World Bank has funded a major portion of this initiative. As such, there are guidelines that should be adhered to.
- An environmental questionnaire would be provided for completion by the Participating Lender (PL). The PL must do its due diligence on the environmental aspects of the project and provide that documentation to ECPCGC.
- The World Bank provides a list of projects that will not be eligible for guarantees under this programme. Strict adherence to this list is required.
The ECPCGC would offer partial guarantees to those borrowers whose cash flow is sufficient to repay the loan but may have any of the following issues:
- Inadequate collateral
- Lack of guarantors
- Business of a higher risk
- A new sector with which the lender does not have sufficient experience
- Some other factor which makes the loan ineligible for approval by the lender.
A fee would be charged for this service. It would be approximately 2.3% of the guaranteed amount, charged on the date of the first disbursement. There would be an annual levy of 2.3% on the outstanding balance of the guaranteed amount. The fee for revolving credits would also be charged annually but would be levied on the agreed amount of the credit limit. This fee would be levied on the lender, who could pass this on to the borrower.
The lending institution must be regulated by ECCB, operating in the ECCU, and approved by ECPCGC to participate in the scheme. It must be a provider of loans to MSMEs and must comply with the requirements of the scheme. The lender must have at least 15 MSME loans in its portfolio and must have been serving the MSME community for at least 3 years. Eligibility would be reviewed annually. Credit unions and banks may apply to ECPCGC to participate. The ECPCGC, in conjunction with the Board of Directors, would determine if the lender is eligible. This would be based on the lender’s standing with its financial regulator and evidence regarding the financial stability of the institution. A key component of the assessment would be the ability of staff to process, service and liquidate MSME loans. A basic contract would be executed between the lender and ECPCGC prior to engagement. This contract is called a Participating Lenders Agreement.
Eligible borrowers must have an annual revenue, actual or projected, of less than XCD2m, and must employ or intend to employ less than 50 persons. The borrower is expected to provide at least 25% equity in the transaction. The maximum loan size is XCD 300,000. Debt service coverage ratio: 1.25:1, meaning that the MSME should have free cash flow to cover 125% of the monthly loan payment.
The lender submits the completed application to the ECPCGC on an electronic platform. The officer at ECPCGC conducts a credit analysis based on the 5 C’s test:
- Applicant eligibility / Character review
- Capacity analysis / Cash Flow review
- Capital / equity analysis
- Collateral analysis
- Conditions: tenor, interest rate, loan amount, overall economy and type of business
The lenders must disburse the loan in accordance with the instructions provided by ECPCGC and should retain all documentation pertinent to the loan for examination by ECPCGC. The lenders will collect guarantee fees and repayments from the borrower and provide a monthly report to ECPCGC. The lender will be obligated to provide the same level of service to a guaranteed loan as it would to a non-guaranteed loan.
The borrower must take all the necessary steps to ensure that loans are repaid on time. ECPCGC would be available to provide guidance on loan restructuring as required. If the loan cannot be restructured, the lender must begin liquidation proceedings. A guarantee request may be submitted to ECPCGC if the loan is in arrears for 90 consecutive days. ECPCGC would investigate, and if all is in order, the guarantee would be paid.
ECPCGC would provide frequent and accurate training to participating lenders. Staff would visit the various islands to conduct the necessary training. A series of webinars would follow. Training would include the following topics:
- Understanding the Small Business Environment
- Building relationships with Small Business Clients
- Credit Risk Assessment and lending Decision Skills for Small Business Lenders
- How to use the ECPCGC guarantee portal
- Other training as identified
ECPCGC would work closely with providers of who have a track record of assisting MSMEs in the region. Existing MSME TA providers would be evaluated before any collaboration agreements are signed. They would be given basic information on how the guarantee programme operates and guidance on the types businesses that would qualify for guarantees:
- Improving the Enabling Environment
- Credit information
As of June 2020, we signed 2 regional banks to the Programme, and they are the official entrants to our “pilot programme” which would run for the month of July 2020. We are proud to announce our partnership with:
- The Bank of Saint Lucia
- The National Bank of Dominica