The UNIDO-MCGS component aims at structuring mutual credit guarantee schemes in India on the lines of established best practices of the Italian experience of Mutual Guarantee Associations (MGAs).

MGAs have been a great success in Italy. They were formed by micro-small firms which had limited access to credit or no access to credit. Members as part of solidarity groups contributed to the corpus/capital of MGAs and in return got credit guarantees and other services such as consultancy, training and hand-holding. The corpus gave significant leverage effects as default levels proved to be low. The decisive characteristics of MGAs have been strong local ties and support from regional business associations – creating social capital in addition to financial capital.

MCGS Tool – The Schematic Design

• Designed on mutual benefits and structured to offer both guarantee and non-guarantee products and services as a parallel complimentary financial and technical service delivery channel for the MSME segment.

• Lenders benefit through quality portfolios (new risk mitigation tool and lower defaults); new business opportunities (specific structured products designed for local needs of the industry); and reduced transaction costs (innovative outsourcing entity reducing duplication of work related to credit screening, appraisal, follow-up and recovery).

• Member units in turn benefit from better credit access and growth opportunities (reduced interest rate, lower collateral requirements and improved leverage on their equity); improved knowledge (through advisory services and consultancy inputs); reduced operational costs (through access to group insurance products, group machine and equipment purchase); and access to finances for intangible assets like IT investment, research and development, and training.

• The larger units outsourcing through the MSME supply chain would gain enhanced and improved capacities.

The objective of this component is achieved through activities
such as:

• Establishing a financial mechanism, which would facilitate better access to finances for MSME projects with an ultimate objective of facilitating growth of MSMEs.

• Identifying strong associations and leveraging on their ability to coordinate with various other stakeholders, especially other institutional stakeholders for successfully implementing the tool through a separate Special Purpose Vehicles (SPVs) under a private-public partnership model in the identified regions.

• Replicating success and inculcating a culture of sound risk echo system within the Indian MSME financial space.

Highlights of ongoing activities:

• Disseminating the Italian MCGS concept through tailor-made workshops and seminars to build awareness of obligations and benefits for the MCGS stakeholders.

• Working intensively with identified industry associations in Pune, Chennai and Bangalore to implement the tool in their respective regions with the support of other national and international institutional partners.

• Bringing on board the international expertise of UNIONFIDI (the largest Italian private CONFIDI) as the main knowledge partner for this initiative by way of transfer of software, IT and management skills. 

• Optimizing synergies across the other components under the project.