Working Capital Needs

Short Term Facilities Unit

A new unit within Head Office called the Short Term Facilities Unit has been formed. The unit will be responsible for the following products:

1. The CEDA Credit Guarantee Scheme (CCGS) which is currently outsourced to BECI;
2. The in-house guarantees facility; and,
3. Small and Micro loans.

The CCGS

The CCGS is a credit guarantee scheme through which CEDA guarantees commercial banks for 75% of the net loss that the bank would normally in the event a guaranteed project fails - the bank bears the remaining 25% of the loss. The guarantee scheme has been managed by BECI from inception in 1999 to date. The scheme was handed over to CEDA in 2003, but the administration of the scheme remained with CEDA. CEDA has decided to take over and administer the scheme in-house with effect from 1 April 2008.

The scheme has guaranteed 442 projects amounting to P118m from inception, as at 31 December 2007. The loan balance was P60m against a fund balance of P45m, at the same date.

The STFU will receive and process guarantee applications from the commercial banks, monitor the performance of the loans guaranteed under the scheme, receive and process claims from the banks and produce monthly and quarterly reports.

Branch staff will be required to be familiar with the terms and conditions of the scheme in-order to be able to sell the guarantee to customers, especially those whose applications are not successful under the CEDA mainline, for reasons other than non-viability. Information booklets are still in process and these will be distributed to the branches for onward distribution to bank branches in their areas, and directly to customers.

The In-house Guarantee Facility

a. Performance Bonds

A performance related guarantee is an undertaking given by CEDA on behalf of the contractor which guarantees the due performance by a contractor in terms of an underlying principal contract. 

Purpose 

A performance guarantee enables a client to bid for contracts that call for guarantees. 

Target Market 

  Performance guarantees are aimed at citizen businesses and individuals

that bid for contracts that require Performance Bonds. 

  Suppliers Guarantees  

A supplier guarantee creates the same rights and obligations as a performance guarantee whereby the CEDA guarantees the supply of goods in terms of a contract between the supplier of goods and a CEDA assisted client. 

 Purpose 

A supplier’s guarantee enables a client to procure goods and services from suppliers on credit in cases where their credit worthiness is not known. 

Target Market 

Supplier’s guarantees are aimed at businesses and individuals that need to buy goods and services from suppliers who do not know their credit worthiness. 

1.2         Bank Guarantees

 

The bank guarantee is an undertaking given by CEDA on behalf of a client to a commercial bank guaranteeing that the client will pay his liabilities to the bank, failing which the Agency would step in and pay off the debt on behalf of the client. The agency becomes a surety and therefore is liable for 100% of the client’s debt as a co-principal debtor. The Agency also denounces it rights of division and excursion. This guarantee poses a very high risk to CEDA and therefore a thorough assessment of the client’s ability to pay the call up, and good, liquid or tangible security should be insisted upon. 

Purpose 

A bank guarantee assists citizen owned businesses who cannot access commercial bank facilities by providing security for the facilities. 

Target Market 

Bank guarantees are aimed at businesses and individuals that require facilities that are available at the banks but are not provided by CEDA directly, such as overdraft and letters of credit. 

EDMs have been requested to forward lists of guarantees currently at their branches. The next step would be send all the guarantees files to the STFU.

Turnaround Time

The intention is to turn-around the application for guarantees within 2 days, and loans within 3 days.