Kafalat provides loan guarantees to small and medium sized enterprises (SMEs) operating in Lebanon.
When an SME applies for a loan from a Lebanese bank, it can request through the bank a loan guarantee from Kafalat. Kafalat analyses the guarantee application, the business plan/feasibility study and other supporting documents, and provided the application fulfills all Kafalat conditions, a loan guarantee is issued to the lender in favor of the bank that is giving the loan. However, a loan application approved by the bank does not necessarily mean that Kafalat will approve and issue a loan guarantee.
Kafalat currently offers three distinct types of loan guarantees:
Interest subsidy to the loan: Kafalat guaranteed loans are subsidized by the central bank to the tune of 7% to reduce the interest burden on the borrower. Some exceptions exist for guaranteed loans to be eligible to the interest subsidy. The final interest rate charged by the bank to the borrower is calculated as follows (See loan calculation examples):
- Lebanese Pounds denominated loans: 40% of the interest rate on 1 year
Lebanese treasury bills + 3%.
Currently (01.01.2006) the interest charged by banks under this framework is
less than 7%, hence all the interest on the loan is paid by the central bank.
See loan calculation examples.
- Loans in other currencies: Libor 1 year + 5.5%.
On US$ denominated loans this would have resulted in the following:
Libor 1 year + 5.5% - (max.7%) Subsidy = Interest to be paid by borrower
For more detailed information on the cost of a Kafalat loan to the borrower, see the sections on the different loan guarantee types as well as loan calculation examples.
Note: Loans not guaranteed by Kafalat may be eligible for interest subsidies; in this case the application for subsidies should be made to the Central Bank directly.