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Montenegro’s Credit Guarantee Fund Law nears completion to aid SMEs

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The Minister of Economic Development, Nik Đeljošaj, announced late last year that the draft law on the Credit Guarantee Fund (KGF) is in its final stages, with expectations for it to be presented to Parliament in the first quarter of this year. The development of this legal framework, he said, has been supported by the European Bank for Reconstruction and Development (EBRD).

“This will provide significant support to our economy, especially small and medium-sized enterprises that have limited access to credit from commercial banks, as the state will guarantee their loans,” Đeljošaj remarked.

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A long road to the law

He did not address whether the current proposal is based on the law adopted by the government in March 2022, when President Jakov Milatović was the minister. That law, however, did not reach the plenary session. At the time, Milatović stated that the law would establish a credit guarantee fund, which would greatly ease access to credit and financing for many small and medium-sized enterprises in Montenegro. He also noted that, with strong support from the EBRD, the fund would become a long-term partner for the economy and help the country become more resilient to future economic and financial crises. The need for a credit guarantee fund was first highlighted over 15 years ago by the Union of Employers of Montenegro (UPCG). However, UPCG was not represented in the working group for preparing the law and, during the public consultation on the draft law prepared by the government three years ago, they argued that the law needed significant adjustments to comply with Montenegro’s regulatory framework.

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“The idea of creating a credit guarantee fund to support entrepreneurs, especially micro, small, and medium-sized enterprises, was initially proposed by UPCG over 15 years ago. We recognized that such a fund would resolve the problem of guarantees that banks require for loan approvals, and it would stimulate business and overall economic growth. Therefore, UPCG fully supports and welcomes the decision to establish the KGF and pass the relevant law,” UPCG representatives said.

They believe that the credit guarantee fund can directly and positively impact the creditworthiness of businesses, particularly those with limited access to financing.

“The fund should provide easier and increased access to financial resources for micro, small, and medium enterprises, entrepreneurs, and individuals engaged in commercial activities, as registered with the relevant authority,” UPCG added.

Suggestions

During the public consultation on the draft law adopted by the government three years ago under the Ministry of Economy led by Milatović, UPCG pointed out that the proposed legislation did not guarantee reliable access to new financing for micro, small, and medium-sized enterprises. They argued that, if adopted in its current form, access to funding would largely depend on the credit policies of commercial banks.

“We believed that the legal proposal needed substantial reworking to reflect a methodical process that transparently introduces a new entity to the financial market in Montenegro. We suggested that the provisions of the proposed law be aligned with existing legislation on leasing, factoring, debt collection, microcrediting, and credit guarantee operations,” UPCG representatives explained.

Additionally, they emphasized that the legal solution must align with the regulatory role of the Central Bank of Montenegro, the country’s economic environment, capital requirements, and international financial reporting standards.

“We pointed out that the way the maximum guarantee amount was defined left considerable room for regulatory breaches and undue influence, potentially endangering market integrity and competition,” UPCG concluded.

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