What is the cost of the loan? What is the interest rate on the loan? What is the cost of a Kafalat Basic loan guarantee?
Cost of Kafalat Basic loan guarantee:
Definitions:
• Loan value: is the value of the loan granted by the bank
• Kafalat Basic guarantee: 75% of the loan value approved by the bank
• Kafalat commission: 2.5% of the value of the guarantee
• Interest accrued during grace period is the value of the interest charged to the
borrower during the grace period where the borrower is not making any repayments
• Interest accrued for 3 months: the interest that is charged by the bank for the first
3 months after the grace period
Formula:
([Loan Value + interest accrued during grace period + interest accrued for 3 months ]* 75% * 2.5%) + ([Loan Value + interest accrued during grace period + interest accrued for 3 months ] * 0.3% fiscal stamps)
The 0.3% fiscal stamp fee is charged once.
Interest rate charged:
Kafalat guaranteed loans can be taken in Lebanese Pounds, US$, or any other transferable currency.
• Lebanese Pounds: banks charge the borrower 40% of the interest on the
Lebanese Treasury Bills (TB’s) of 1 year. For information on current TB rates,
please check the Central Bank.
The Central Bank subsidizes a maximum 7%, or the interest charged, whatever is
lower.
Example:
If the Lebanese TB (1 year) is 6.75%, the bank uses 5.7% as the interest rate on the loan. (6.75% * 40%) + 3% = 5.7%
As this rate is less that 7%, the whole interest is paid by the central bank, and the borrower pays no interest rate.
If the Lebanese TB (1 year) rises to 12%, the bank calculates an interest rate of 7.8% on the loan, and the Central bank subsidizes 7%. The interest rate paid by the borrower is in this case 0.8%.
• US$: The banks charges LIBOR (1 year) + 5.5%. (For up-to-date LIBOR rates,
please consult the British Bankers Association.
The Central Bank subsidizes a maximum 7%.
Example:
If the LIBOR (1 Year) is 2.28%, the bank uses 7.78% as the interest rate on the loan. The Central bank subsidizes 7%. The interest rate paid by the borrower is in this case 0.78%.
Final cost of the loan:
The final cost of the loan is made up of:
• Cost of Kafalat commission
• Interest charged to borrower
• One time file fee may be charged by bank (maximum 400.000 Lebanese Pounds)
• Some banks charge an additional bank commission of 0.2% of the outstanding
balance calculated every three months
• 0.3% fiscal stamps fee paid once
See examples.
