Serving Borrowers
The Kafalat loan guarantee is issued based on the viability of the business project to be financed. The guarantee that is made in favor of the lending bank, allows the borrower to provide the bank with collateral, which makes the loan safer for the bank. With the Kafalat loan guarantee, the bank may require less other collateral for the loan. In fact, Kafalat offers two types of guarantees that explicitly require the lending bank not to impose any additional collateral request on the borrower. The final decision (and the conditions) for granting the loan rests however in the hands of the lender. Kafalat constantly urges banks not to ask for other guarantees and to be content with the credit decision made based on the business plan and the feasibility of the project.
Subsidy for the interest on the loan: In addition to the guarantee, the borrower benefits from a subsidy on the interest that is being charged by the bank. This allows SMEs to access bank funding at a reasonable cost.
Serving Lenders (the banks)
• The Kafalat loan guarantee reduces the risk of the loan for the bank.
• Kafalat guaranteed loans in Lebanese Pounds benefit from exemption from the
statutary reserve requirement by the Central Bank of Lebanon. This significantly
reduces the cost of capital of the lending bank, allowing it to lend customers with
lower interest rates.
Serving the Lebanese Economy
The Lebanese private sector is dominated by small and medium sized enterprises that face difficulties in accessing funds from commercial banks. Kafalat’s loan guarantees help SMEs in Lebanon to access commercial bank debt financing. This allows SMEs to increase the financing of their business activities, which leads to increased domestic investment, output, and employment.
