Last week Mozambique took a significant step towards bolstering its economic infrastructure when the Council of Ministers approved the creation of a Credit Guarantee Fund, a public entity (Fundo de Garantia Mutuária, Fundo Público – FGM, FP).
The initiative is part of the Economic Stimulus Package (EAP) and its efforts to facilitate more accessible finance for micro, small, and medium-sized enterprises (MSMEs). Governed by a set of regulations also approved on the session, the fund is designed to provide guarantees and counter-guarantees, integrating public financial resources managed with financial and asset autonomy under the Public Treasury.
The Credit Guarantee Fund is poised to be more than just a financial tool; it is expected to be a vital component of a broader economic strategy aimed at enhancing the entrepreneurial ecosystem in Mozambique. By offering a cushion of financial security, the fund will aim to lower the risk for lenders and incentivize them to extend credit to smaller businesses that traditionally lack sufficient collateral. The move is expected to stimulate economic activities and job creation across various sectors, thereby promoting inclusive economic growth.
In addition, the establishment of a legal framework for the management companies of Credit Guarantee Funds highlights the government’s commitment to maintaining high standards in financial management and administration. A decree also authorized the formation of a managing company in the form of a public limited company regulated by the Central Banck of Mozambique, to manage the operation of the fund. This step ensures that the fund will operate with the highest levels of transparency and efficiency, mirroring best global practices in financial governance.
The Role of Credit Guarantee Funds in Other Developing Economies
The introduction of Credit guarantee funds in Mozambique reflects a growing recognition of their importance in other developing economies. Such funds are pivotal in addressing the fundamental challenge of access to finance that stifles small and medium enterprise growth. By providing a degree of safety net to lenders, these funds reduce the perceived risk associated with lending to smaller entities, which often do not have the history or collateral to secure traditional loans.
In regions like Southeast Asia and Latin America, similar funds have played a crucial role in enabling financial inclusion and economic diversification. For instance, public guarantee schemes in countries like India and Brazil have significantly increased the lending confidence among banks and financial institutions, thereby widening the credit window for MSMEs. This has not only helped in fostering a competitive business environment but has also contributed to reducing poverty and enhancing socio-economic stability.
The strategic implementation of these funds also serves as a catalyst for regional economic integration and development. By boosting the creditworthiness of small and medium enterprises, developing countries can accelerate their economic development, create more jobs, and improve their competitive stance in the global market. Furthermore, these funds help in building a resilient economic structure capable of withstanding financial shocks and uncertainties, which are all too common in emerging markets.
Mozambique’s initiative to establish a Credit Guarantee Fund is a commendable step towards economic resilience and inclusivity. The success of this fund could potentially become a regional model, given its transformative power of strategic financial support in emerging economies.
Further Africa
