I can undoubtedly say that if it weren’t for the Credit Guarantee Fund, Turkey could not have achieved such a high rate of growth in 2017. As the ratio of non-performing loans to total loans was slowly decreasing, we have also witnessed that there has been no increase in issuance of dud cheques. Obviously, the result would get diminished as the denominator keeps increasing but at least it was quite rewarding in terms of restoring market morale.
But you know what they say, “The windmill cannot work with your blow.” The expectation was that the companies would gather strength again and maybe start a restructuring process with the life line support provided by the CGF. But instead, they over borrowed and were ultimately left with no choice but to restructure their debts whereas they should have been restructuring themselves. I even got this question: “Should not the cheques be within the scope of the CGF too?” Such request of the sectors first had me focusing on a rather basic approach to the matter.
But first, a little reminder for you: According to a recently passed law, cheques shall not be cashed before the date on the cheque. This means that the cheque is now an credit instrument, more than a payment. However, there are no severe sanctions to prevent the issuance of dud cheques as the Government is more focused on constantly amending the penalties restricting freedoms.
This being the case, we can see that cheques are slowly becoming money substitutes. But, there’s one difference: While it is actually a bill that is exchanged between under an agreement and a report, it turns into some sort of credit issued by the drawer with a maturity of their own choice. When viewed from this aspect, it may be counted among the types of credits that are subject to the CGF. In other words, the drawer can give the same amount of security for due payment as the amount written on the cheque, just like public banks declaring 7% CGF-based security for the loans they provide.
But are there any potential downsides? Maybe not technically, but some moral or ethical issues may occur. Although the ratio of non-performing loans to total loans remains low seems encouraging, the fact that the drawer is using the instrument in question to create an amount of cash s/he does not currently own is causing a big question on minds.
Obviously, people are free to provide any type innovation to maintain market liquidity. However, considering the fact that Turkish businesspeople and tradespeople have created more than enough inventions so far regarding the usage of cheques, I think it may not be right to make further suggestions for the moment.