- What is Kafalat - Serving Borrowers - Serving Lenders (the banks) - Serving the Lebanese Economy - Partnerships - Ownership of Kafalat - Auditor
What is Kafalat Kafalat is a Lebanese financial company with a public concern that assists small and medium sized enterprises (SMEs) to access commercial bank funding. Kafalat helps SMEs by providing loan guarantees based on business plans / feasibility studies that show the viability of the proposed business activity.
It processes guarantee applications for loans that are to be provided by Lebanese banks to SMEs operating throughout Lebanon. Kafalat targets SMEs and innovative start ups that belong to one of the following economic sectors: • Industry • Agriculture • Tourism • Traditional Crafts • High Technology

Kafalat guaranteed loans benefit from interest rate subsidies. These subsidies have been set up to mitigate the crowding out effect of the high interest rates in Lebanon that are induced by public sector borrowing. The interest rate subsidies are financed by the Lebanese treasury and administered by the Central Bank of Lebanon.

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Serving Borrowers
The Kafalat loan guarantee is issued based on the viability of the business project to be financed. The guarantee that is made in favor of the lending bank, allows the borrower to provide the bank with collateral, which makes the loan safer for the bank. With the Kafalat loan guarantee, the bank may require less other collateral for the loan. In fact, Kafalat offers two types of guarantees that explicitly require the lending bank not to impose any additional collateral request on the borrower. The final decision (and the conditions) for granting the loan rests however in the hands of the lender. Kafalat constantly urges banks not to ask for other guarantees and to be content with the credit decision made based on the business plan and the feasibility of the project.
Subsidy for the interest on the loan: In addition to the guarantee, the borrower benefits from a subsidy on the interest that is being charged by the bank. This allows SMEs to access bank funding at a reasonable cost.

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Serving Lenders (the banks)
• The Kafalat loan guarantee reduces the risk of the loan for the bank.
• Kafalat guaranteed loans in Lebanese Pounds benefit from exemption from the   
  statutary reserve requirement by the Central Bank of Lebanon. This significantly
  reduces the cost of capital of the lending bank, allowing it to lend customers with
  lower interest rates.

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Serving the Lebanese Economy
The Lebanese private sector is dominated by small and medium sized enterprises that face difficulties in accessing funds from commercial banks. Kafalat’s loan guarantees help SMEs in Lebanon to access commercial bank debt financing. This allows SMEs to increase the financing of their business activities, which leads to  increased domestic investment, output, and employment.

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Partnerships
In 2006, Kafalat signed a partnership with the European Union and the Ministry of Economy and Trade of Lebanon (MoET) to increase the amount and the size of the loan guarantees beyond the level offered by Kafalat until 2005. This partnership comes as part of the Lebanese government’s efforts in the formulation of an SME financial strategy and the promotion of economic development. The new guarantee types will consolidate Kafalat’s initiative to encourage the financing of investment proposals based on business plans and credit appraisal, placing emphasis on the project’s feasibility and viability instead of the borrower’s net worth. Banks that will lend to SMEs based on the Kafalat loan guarantees developed under this partnership will be required not to impose any collateral requirements on top of the guarantee from Kafalat.
 
For SMEs and start ups, this partnership specifically aims to:

• Ensure access to credit to finance sound investment projects, without
  having to provide any collateral requirement;
• Increase and strengthen the equity of SMEs and start ups;
• Promote the integration of SMEs and start ups into the formal sector
  by ensuring that they register formally as a condition for a loan
  application.

For commercial banks, this partnership specifically aims to:
• Increase the maximum amount of loan that can be guaranteed under
  the scheme (beyond the level offered by Kafalat until 2005);
• Provide incentives to commercial banks to be less risk averse basing
  their lending decisions on the project investment merits, cash flow and
  market opportunities;
• Increase the amount of commercial bank lending available.

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Ownership of Kafalat
Kafalat (SAL) is owned by the National Institute for the Guarantee of Deposits (75%) and fifty Lebanese banks (25%)

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Auditor
Kafalat SAL is audited by Deloitte Touche Tohmatsu