SME Credit Insurance Facility

Very small compared to comparative levels in OECD as well as most other credit segments middle income countries SME sector and SME labour absorbtion declined over the same period (from 62% of private sector employment in 2000 to 55% in 2015), partly due to a sharp increase in SME closure and failure. [...] Small/Medium business sector critical for economy, employment & growth It has long been recognised that the SME sector plays a critical role in the economy, with a key role in different areas » SMEs play a key role in employment creation » SMEs play a key role in innovation, as the incubator for new businesses and new innovations » SMEs play a key role in economic growth and exports Bank finance i. [...] However, significant challenges in financing the SME sector Weaknesses in collateral quantity & quality Financial statements weak, varying reliability Sensitivity to swings in the business cycle Sensitivity to management changes Credit information incomplete, unreliable Risk & cost on contract enforcement & collateral recovery High regulatory capital and provisioning requirements (Ba. [...] 2019/12/20 Credit Insurance Facility for bank SME lending: Value for banks Credit insurance improve the level and quality of the collateral offered by SME clients and reduces the bank loss in the case of default. [...] 13 Value for banks Primary features of Facility Risk transfer to A-rated insurers / reinsurers, at 10% to 50% of portfolio risk (structured based on bank preference) = Basel II/III requirements Proposal structured based on profile & performance history of specific bank portfolio Supported by a consortium of leading international reinsurers & credit risk managers; implemented through primary.