Revitalized PhilGuarantee supports socio-economic development

Revitalized PhilGuarantee supports socio-economic development | Daily Tribune

Except for a handful of bankers, I bet the public and most lending entities, particularly the second or even third-tier institutions such as rural banks, development banks, cooperatives and microfinance lenders, are not at all familiar with the Philippine Guarantee Corporation or PhilGuarantee. Allow me to explain what PhilGuarantee is all about.

In 1977, the forerunner of this entity, called Philippine Export and Foreign Loan Guarantee Corporation (PhilGuarantee), was created by virtue of Presidential Decree 1080 for the purpose of creating a government agency that would provide prospective foreign creditors to the country a sovereign guarantee.

This means any guaranteed facility has the ironclad full faith and confidence of the government assuring creditors that they would be repaid with sovereign resources in the event of non-payment by the guaranteed enterprise.

Originally, given the relatively low level of foreign currency reserves of the country in the 1970s, the primary focus was to promote foreign currency development financing in support of exports and imports, public utilities, and Board of Investment-registered enterprises. However, over time, as the development resources required and the priorities of the country evolved, the guarantee facility took on a much broader coverage of needs and applicable industries.

Today, PhilGuarantee provides various types of credit support to industries vital to the development needs of the country. As of December 2023, the cumulative guarantee portfolio was at P461.5 billion with assets of P59 billion backed up by capital of P26 billion and generated revenues of P5.32 billion with a net income recorded at P2.8 billion. The total cumulative beneficiaries registered at 874,490 composed of various borrowers, MSMEs, farmers and fisherfolk.

Currently, the largest component of PhilGuarantee’s guarantee portfolio is to the housing industry. This came about in 2018 with the merger of the Home Guaranty Corporation with PhilGuarantee. These are loans and mortgages, contracts to sell receivables, developers’ financing, and other forms of credit arising from financial contracts in the real estate industry. In support of financing low cost or socialized housing mortgages, is a customized fund — Abot Kaya Pabahay Fund — that enables very liberal mortgage financing terms such as 15 to 20 years repayment, up to 100 percent loan coverage, and even tax-exemption of the lender’s interest income up to as much as 11 percent.

For the Micro, Small and Medium Enterprises (MSME’s), credit support is available for capital expenditures, working capital, finance and information services, training and marketing. The MSME guarantee portfolio also has a socialized focused component, the Abot-Kaya Fund, that caters to micro enterprises which can cover as much as 80 percent to 100 percent of the loan portfolio which are unsecured, partially secured or fully secured.

There is the Agricultural Guarantee Fund Pool (AGFP), another special fund intended to mitigate the risk in agriculture lending which can cover up to 85 percent of the outstanding loan balance; and the Electric Cooperative Partial Credit Guarantee facility available to cooperatives for capex purposes, particularly for renewable projects which can cover up to 80 percent of the loan.

Then, finally, there are the Priority Sectors which are essentially any other business enterprise apart from the aforementioned special focus of interest that has been identified by the government that will be most effective in creating positive ripple effects that would lead to full employment of our people; raise income levels; improve living standards; and, overall, bring prosperity to our nation. These are industries like tourism, renewable energy, power distribution, health, infrastructure projects, digital communications, water, sustainability and environmental projects, and creative arts.

So, how can you or your business participate and enjoy the benefits arising from PhilGuarantee?

PhilGuarantee provides various types of credit support to industries vital to the development needs of the country.

For borrowers whether it be for a small business or for a housing loan, or for large and medium-sized corporations as well as MSMEs, transact your credit needs with financial institutions that have a guarantee facility from PhilGuarantee. Why?

Your loan that will be applied for and those guaranteed will enjoy interest income that are tax free for housing loans, and for all types of loans, a sovereign guarantee from the National Government that will enjoy a lower risk rating for the lender. This means their cost of funding your loan will be much lower and so you should be in a better position to negotiate for a lower interest rate for your loan. If enough prospective borrowers are aware of this and are smart enough to gently push your friendly banker to give you a better deal, gradually the banks enjoying a guarantee facility will be forced to be more competitive, allowing more borrowers to benefit from a revitalized PhilGuarantee.

Until next week… OBF!

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