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Partial credit guarantees: Principles and practice

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  • Honohan, Patrick

Abstract

Partial credit guarantee schemes have experienced renewed interest from governments keen to promote financial access for small enterprises, not least as a response to the credit crunch in advanced economies. While the market can find uses for partial credit guarantees, the attractions for public policy can be illusory: indeed their most attractive feature for myopic politicians may be the ease with which the true cost of guarantees can be understated, at least at the outset. In practice, the actual fiscal cost of existing schemes has varied widely across countries and has represented a high per dollar subsidy in some cases. Despite the recent application of some innovative techniques, the social benefit of such schemes has proved difficult to estimate, not least because their goals have been vague. Operational design has influenced the cost and apparent effectiveness of different schemes and has also varied widely. Clear and precise goals, against which performance is regularly monitored, realistic pricing verified by consistent and transparent accounting, and attention to the incentive features of operational design, especially for the intermediaries, are among the prerequisites for such schemes to have a good chance of truly achieving improvements in social welfare.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Stability.

Volume (Year): 6 (2010)
Issue (Month): 1 (April)
Pages: 1-9

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Handle: RePEc:eee:finsta:v:6:y:2010:i:1:p:1-9

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Web page: http://www.elsevier.com/locate/jfstabil

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Keywords: Credit guarantees Development finance SME finance Subsidies;

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References

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Citations

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Cited by:
  1. Bartoli, Francesca & Ferri, Giovanni & Murro, Pierluigi & Rotondi, Zeno, 2013. "Bank–firm relations and the role of Mutual Guarantee Institutions at the peak of the crisis," Journal of Financial Stability, Elsevier, vol. 9(1), pages 90-104.
  2. Beck, Thorsten & Klapper, Leora F. & Mendoza, Juan Carlos, 2008. "The typology of partial credit guarantee funds around the world," Policy Research Working Paper Series 4771, The World Bank.
  3. Giovanni Busetta & Alberto Zazzaro, 2009. "Mutual Loan-Guarantee Societies in Monopolistic Credit Markets with Adverse Selection," Mo.Fi.R. Working Papers 33, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  4. Koen Rossel-Cambier, 2010. "Do Multiple Financial Services Enhance the Poverty Outreach of Microfinance Institutions?," Working Papers CEB 10-058, ULB -- Universite Libre de Bruxelles.
  5. Ricardo Bebczuk, 2010. "Acceso al financiamiento de las PYMES en Argentina: Estado de situación y propuestas de política," CEDLAS, Working Papers 0104, CEDLAS, Universidad Nacional de La Plata.
  6. Michael Fuchs & Leonardo Iacovone & Thomas Jaeggi & Mark Napier & Roland Pearson & Giulia Pellegrini & Carolina Villegas Sanchez, 2011. "Financing Small and Medium Enterprises in the Republic of South Africa," World Bank Other Operational Studies 12687, The World Bank.
  7. Anginer, Deniz & de la Torre, Augusto & Ize, Alain, 2014. "Risk-bearing by the state: When is it good public policy?," Journal of Financial Stability, Elsevier, vol. 10(C), pages 76-86.
  8. C. Lelarge & D. Sraer & D. Thesmar, 2008. "Entrepreurship and Credit Constraints - Evidence from a French Loan Guarantee Program," Documents de Travail de la DESE - Working Papers of the DESE g2008-07, Institut National de la Statistique et des Etudes Economiques, DESE.
  9. Gutierrez, Eva & Rudolph, Heinz P. & Homa, Theodore & Beneit, Enrique Blanco, 2011. "Development banks : role and mechanisms to increase their efficiency," Policy Research Working Paper Series 5729, The World Bank.
  10. Aliona Cebotari, 2008. "Contingent Liabilities," IMF Working Papers 08/245, International Monetary Fund.
  11. Ayadi, Rym & Gadi, Salim, 2013. "Access by MSMEs to Finance in the Southern and Eastern Mediterranean: What role for credit guarantee schemes?," CEPS Papers 8061, Centre for European Policy Studies.
  12. Berg, Gunhild & Fuchs, Michael, 2013. "Bank financing of SMEs in five Sub-Saharan African countries : the role of competition, innovation, and the government," Policy Research Working Paper Series 6563, The World Bank.
  13. Saadani, Youssef & Arvai, Zsofia & Rocha, Roberto, 2011. "A review of credit guarantee schemes in the Middle East and North Africa Region," Policy Research Working Paper Series 5612, The World Bank.
  14. Karel Janda, 2011. "Credit Guarantees and Subsidies when Lender has a Market Power," Working Papers IES 2011/18, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2011.

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