Economic and Financial Effects of Credit Guarantee as Means of Policy-Based Finance

Since the financial crisis that occurred around the year 2000, the presence of credit guarantee as a means of policy-based finance has grown. In the meantime, expectations have tended to fall on credit guarantee programs not only to exert the microeconomic effect of raising the efficiency of finance for small and medium-size enterprises (SMEs) but also to play a role in supporting the entire economy in times of recession. This paper analyzed the relationship between credit guarantee and short-term economic fluctuations on a time series basis through a Granger causality test using panel data. As a result, while we recognized the presence of a causal relationship from real economic factors, such as economic fluctuations to credit guarantee programs, little causality was observed in the opposite direction. Regarding the relationship between finance-related variables, such as gross loans, and credit guarantee, generally speaking, the direction of causality was also only from the former to the latter. In addition, we aggregated and processed particular data related to SMEs in our own way in order to examine the relationship between credit guarantee, particularly in terms of liability assumption, and borrower companies’ business performance from the perspective of the impact on economic growth. As a result, we found that the percentage of poorly performing companies was lower among companies that assumed guaranteed liabilities than among ones that did not. As far as the results of our analysis on an aggregated basis, credit guarantee programs do not have an overly large presence. On the whole, we may give the assessment that credit guarantee programs are being operated only to the extent necessary for playing a supplementary role in supporting the real economy.