The proposal to create the National Credit Guarantee Agency (NaCGA), a new entity intended to provide credit guarantees for businesses and individuals, is anticipated to be presented to the cabinet this month.
Deputy Finance Minister Paopoom Rojanasakul indicated that the plan for NaCGA, which aims to be an integral part of the nation’s financial ecosystem, is likely to be brought before the cabinet for consideration on August 13. The proposal is currently in the feedback stage with relevant agencies.
If the proposal cannot be reviewed by the cabinet this week, it may be delayed for another two weeks, he noted.
According to Mr. Paopoom, the Finance Ministry will submit a detailed proposal to the cabinet that outlines the foundational principles for establishing the NaCGA. This proposal will cover the agency’s responsibilities, structure, and the state’s subsidy mechanism for small and medium-sized enterprises (SMEs) seeking loan guarantees from NaCGA. If the cabinet approves these principles, the ministry will proceed to draft legislation to officially establish the NaCGA, he added.
Mr. Paopoom explained that the ministry has already collaborated with the Bank of Thailand to prepare this draft law, which is expected to come into effect around mid-2025.
“Once NaCGA is operational, the existing Thai Credit Guarantee Corporation (TCG), which guarantees loans for SMEs, will continue to function alongside NaCGA,” he stated. “However, their operational methods and guarantee approaches will vary.”
Under the current TCG credit guarantee framework, financial institutions assess the risk of each SME applying for a loan. If they identify a high-risk profile, they refer the applicant to TCG for guarantee assistance. Upon approval of the guarantee by TCG, the institution would then offer the loan to the SME.
Conversely, NaCGA will operate similarly to an insurance company, offering financial risk insurance and conducting its own risk assessments for each SME before issuing a guarantee certificate. SMEs can then use this certificate to secure loans from financial institutions.
Moreover, the credit guarantee mechanisms for TCG and NaCGA will differ, with TCG providing guarantees under the Portfolio Guarantee Scheme (PGS) that covers up to 30% of the portfolio. In contrast, NaCGA will offer individual guarantees based on risk-based pricing, likely resulting in a reduced budget burden for the state compared to PGS.
Mr. Paopoom likened NaCGA’s guarantee model to car insurance, where premiums are determined by individual risk behaviors—higher risks result in higher premiums while lower risks lead to lower premiums. For example, if an SME seeks a 100% loan guarantee from NaCGA, the guarantee fee might be higher.
Nonetheless, he assured that NaCGA’s guarantee fees would be relatively reasonable due to state subsidies covering part of the costs, with SMEs responsible for the rest based on their risk profiles.
NaCGA is part of a wider government initiative aimed at improving financial support and risk assessment capabilities under the “Ignite Finance” program.
This agency is intended to complement TCG’s efforts, which is a state-owned financial institution mainly focused on providing credit guarantees for SMEs. TCG, operating under the Finance Ministry, has been vital in supporting businesses with various financial products and services.
Mr. Paopoom emphasized that the establishment of NaCGA underscores the Thai government’s commitment to improving credit accessibility and creating a more inclusive financial environment, which is essential for economic recovery and development in the aftermath of the pandemic.
In a related observation, Udom Srimahachota, vice-president of the Thai Hotels Association’s western chapter, commented on the need to restructure Thailand’s financial ecosystem to better support SMEs, which constitute the majority of hotels and tourism operators.
Mr. Udom suggested that forming a one-stop agency and permitting foreign financial institutions to open branches in Thailand presents both opportunities and challenges, urging the government to thoroughly analyze the long-term implications.
He noted that while the Finance Ministry anticipates borrowers will pay a competitive premium to NaCGA for credit guarantees, this might not significantly differ from TCG rates, which the ministry may potentially integrate into NaCGA.
Furthermore, Mr. Udom recommended that the government assign the Office of Small and Medium Enterprise Promotion and the Institute of SME Development to provide training for operators to enhance skills and improve their services and products for greater competitiveness.
“Since the pandemic, numerous small hotels have struggled to recover due to low asset values and a high debt-to-equity ratio accumulated over many years, hindering their access to loans,” he explained.
He stressed that the current 2.5% policy interest rate is a significant barrier preventing small operators from competing against larger conglomerates and Chinese companies, particularly in light of rising labor and product costs.
Mr. Udom called for stricter regulation of this financial ecosystem to avert economic bubbles and illegal practices.
