Minister Lim Hng Kiang's reply to Parliament Questions on the Special Risk Initiative

Question No 305 of Notice Paper No 306 of 2009

Name and Constituency of Member of Parliament
Mdm Ho Geok Choo, Member for West Coast GRC

Question
To ask the Minister for Trade and Industry (a) how successful has the Risk Sharing Initiative been and why is there a need for a weaning-off period if the economy is improving; and (b) by scaling back the financing assistance schemes and the eventual discontinuation of the schemes in January 2011, how will it affect the SMEs and whether it will hamper efforts to grow our own local MNCs.

Answer
During the global financial crisis, financial institutions became more risk averse. To ensure that local enterprises had sufficient financial resources to continue to operate, invest, trade and internationalize, existing business and trade financing schemes were enhanced significantly in December 2008 and the Special Risk Initiative (SRI) was launched during Budget 2009.

These measures have been successful in alleviating the credit tightness. Since December 2008, more than 14,000 loans

[1]

worth about $8 billion have been catalyzed under both the SRI, and enhanced business and trade financing schemes. More than 13,000 companies, of which more than 90% were SMEs, benefitted from the schemes. The total amount of loans given was more than 5.5 times the loan amount given out under government-assisted schemes over the one year period prior to the changes.

With the improvement in economic conditions, credit conditions have eased. The major economies worldwide have stabilized and appear on the way to recovery. Nonetheless, we are cognizant that smaller companies, especially those in badly affected sectors, may still face difficulty accessing commercial credit. At the same time, there remain challenges in the credit insurance markets, as well as in cross-border financing. We thus decided to extend the SRI and enhancements to the business and trade financing schemes for another year until end January 2011, with some scaling back on lending terms. The one year extension will help companies adjust as the economy makes the transition from recession to growth.

In the steady state, Government loan schemes are not intended to replace the commercial lending markets. They are meant to facilitate viable companies, but with higher risk profiles, access credit. Companies with lower risk profiles should be able to access commercial lending to meet their needs, especially amidst the recovering commercial credit market. The scale back in the SRI and the various business and trade financing schemes have been primarily in the Government’s risk share, rather than to the eligibility criteria or type of loan facility supported. Based on the current profile of loans, the scaled backed business and trade financing schemes will still be sufficient to meet the needs of the vast majority of SMEs, for instance, the revised BLP loan quantum cap of $2mil is still sufficient for more than 95% of past SME loans. After the discontinuation of the SRI in 2011, SMEs will still be able to tap on the mainstay Government financing schemes, which were in place before the recession.

[1] This includes trade turnover covered under the Export Coverage Scheme.