Individual and Portfolio Models

Individual and Portfolio Models

This classification relates to the way a loan is guaranteed.

Individual Model

Individual borrowers are approved by the guarantor and are directly linked
with a participating institution. The borrowers still have to fulfill the lender’s
requirements. If the loan is approved, borrowers have to pay a fee to the
entity. The fee depends on the amount loaned or guaranteed. It is also
possible that the lender collects the fee and pays the guarantor.

Portfolio Model

In this model, the guarantor does not approve single loans, but negotiates
the criteria for the portfolio it will be guaranteeing. These criteria may vary
depending on the target group. All loans meeting these criteria will be
automatically guaranteed by the fond.
The major advantage for participating institutions is that the maximum
possible loss is known in advance. That loss could be determined to fall into
acceptable levels. However, the fund has to be established in such a way
that the participating lender will consider the financial viability and not only
the security aspect.

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Direct and Indirect Guarantees

Direct and Indirect Guarantees 

This classification relates to the relation between the borrower and the scheme.
Direct Guarantees 
The donor agency seeking to establish a guarantee fund acts as the guarantor and in case of default repays up to a percentage agreed. The client is presented for guaranteeing by a participating lender and the guarantor decides whether to guarantee the loan or not. In order to be approved, the loan has to be guaranteed directly by the guarantor. The advantages of this system are that it is easy to establish and to administer, since the role of the donor agency is clearly defined. The disadvantage is that it operates in an isolated way, with few institutional relations, which affects its impact on the target group. It also requires stringent control measures, making administrative costs relatively high.

Indirect Guarantees 
The difference with direct funds is that a third party administers the fund established by the donor agency. These guarantees also guarantee the loan up to a certain percentage. The final payment is debited to the fund by the third party and can take place without direct involvement of the donor agency, to which only progress reports are given. Credit Guarantee Schemes – Conceptual Frame 5 The Central Bank or the Government can sponsor these guarantee systems. The advantage of a system created by the government is that continuity is possible. On the other hand, lack of confidence and bureaucratic tardiness are also ingredients inherent in these systems.

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Credit guarantee

Credit guarantee is an alternative business in order preservation or protection of the risk of credit losses that may occur, where the risk of loss should be measured financially.

In terms, guarantee is an agreement in which a third party, for the benefit of creditors, bind themselves to meet the debtor's agreement, if the debtor does not fulfill the agreement.

The Parties in the Guarantee.
In the guarantee, the parties involved in it there are 3 (three) parties, namely:

Recipient of a guarantee, is Bank / Non-Bank Financial Institutions disbursed loans to secured and entitled to receive indemnity insurance (claims) from the guarantor if the Guarantee cannot meet credit obligations at maturity and cannot be extended or stalled credit before maturity;

Guaranteed is the party that received credits from the receiver to obtain warranty service guarantee from the Guarantor;

Guarantor is a company that conduct underwriting activities through the provision of services is guaranteed, the guarantor and guarantee recipients

The principle of the credit guarantee
Credit Guarantee have principles which include business feasibility, complementary credit (credit accesoir), substitute collateral, the takeover while the risk of bad debts, accounts receivable subrogation, third party involvement, and cooperation control. These principles must exist in the guarantee as an effort of prudence (Prudent) because the risk of a large guarantee. In addition, in the event of an error / default committed by Recipient guarantee, payment claim cannot be done but on the contrary, if in default carried out by guarantee, the Company Guarantor to pay the claim according to the agreed contract credit guarantee.

The Credit Guarantee Agreement
Credit Guarantee Agreement is an additional agreement (accesoir contract) agreement on the principal (main contract) between the Guarantee and Security Recipients, and thus in the business of bailing out the Certificate of Agreement there are 2 (two) types of agreements, namely:

a.   The agreement called Basic Agreement (Underlying Contract) the credit agreement was made between recipients with Guaranteed Warranty. This agreement is the basis of the emergence of an agreement granting guarantees to the Guaranteed Guarantee Certificate.

b.   The agreement called Supplementary Agreement (Agreement accesoir) made between the Guarantor Collateral Recipient about the provision of guarantees against possible defaults on loans committed Guaranteed obtained from the Receiver Warranty.

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