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A model for calculating optimal credit guarantee fee for small and medium-sized enterprises

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  • Taghizadeh-Hesary, Farhad
  • Yoshino, Naoyuki
  • Fukuda, Lisa
  • Rasoulinezhad, Ehsan

Abstract

A credit guarantee scheme is a method for promoting lending to small and medium-sized enterprises (SMEs) by formal financial institutions. It reduces information asymmetry and SMEs’ collateral burden, but at a cost of a credit guarantee fee. The paper provides a theoretical model for calculating the optimal credit guarantee fee. In the empirical part, this study examines whether selected macroeconomic variables and financial health of SMEs have a statistically significant impact on default risk ratio of loans to SMEs – the main determinant of the fee. Principle component analysis (PCA) and two vector error correction model (VECM) models are applied on a sample of 1363 SMEs. Empirical results support our hypothesis that the credit guarantee fee should be different for sound and risky SMEs in order to avoid moral hazard, but also according to the macroeconomic state.

Suggested Citation

  • Taghizadeh-Hesary, Farhad & Yoshino, Naoyuki & Fukuda, Lisa & Rasoulinezhad, Ehsan, 2021. "A model for calculating optimal credit guarantee fee for small and medium-sized enterprises," Economic Modelling, Elsevier, vol. 95(C), pages 361-373.
    • Handle: RePEc:eee:ecmode:v:95:y:2021:i:c:p:361-373
    DOI: 10.1016/j.econmod.2020.03.003
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    More about this item

    Keywords

    Small and medium-sized enterprises (SME) finance; Credit guarantee scheme; Credit guarantee fee; Credit constraints;
    All these keywords.

    JEL classification:

    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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