The core services provided by ACGF are credit guarantees, which cover a share of the default risk of a credit. In case of default of the borrower, the lender recovers the value of the guarantee from ACGF.
Currently, ACGF provides guarantees for loans ranging from USD 10,000 to USD 500,000 or equal value in Afghan Afghani.
In selecting the loans ACGF relies on clear and well-defined eligibility criteria:
- SME size of maximum: 500 employees, USD 15 million annual turnover, USD 15 million total assets
- In most cases, ACGF guaranteed loans have a maximum duration of 3 years
- Eligible sectors include private sector activities except housing; trade finance is restricted to exclude pure import / re-export investments. In case of trade finance a physical set-up of the respective business in Afghanistan is required
- Eligibility of borrowers: borrowers can be individuals (single ownership, partnership, family business) or legal entities (incorporated companies) with private and business residences in Afghanistan
- Borrowers' businesses need to be feasible and generating sufficient cash-flow / income so as to provide sufficient repayment capability; borrowers need to be creditworthy, both individually (i.e. in respect to his/her entrepreneurial suitability, managerial and technical know-how and experience) and materially (i.e. in respect of their financial position)
- Eligible loan purposes include working capital and fixed assets
With these eligibility criteria in place the loan conditions (e.g. interest rates) are set at the discretion of the PIs. Hence, the PIs remain in control throughout the lending process.
Overall, the credit guarantees provided by ACGF are progressive tools for supporting and developing the financial sector of Afghanistan.
Credit guarantees provide multiple benefits for PIs and SMEs and contribute to the overall macro-economic development of Afghanistan.
Benefits for PIs:
- Financial services innovation and a focus on customer needs
- Increasing lending volume without drastic risk increases
- Profit increases
- Outreach to previously inaccessible target groups
- Guarantees serve as external collateral substitution and resolve the issue of the lack of collateral by the borrowers
- Risk sharing with the PIs allows mitigation of objective and subjective risk perceptions, which are salient to the PIs in Afghanistan
Benefits for SMEs:
- Easier access to financing
- Loan sizes and conditions appropriate to the need and repayment capacity
- Realizing the growth potential and higher income
- Private sector development
- Creation of additional income and employment for the local population
- Overall strengthening of the Afghan financial sector
- Counterbalancing economic and security challenges
These benefits make ACGF's credit guarantees a valuable tool, well-suited for the development of the financial sector in the challenging economic context of Afghanistan.