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Partial Credit Guarantees: Principles and Practice

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  • Patrick Honohan

Abstract

Partial credit guarantee schemes have experienced renewed interest from governments keen to promote financial access for small enterprises. While the market can find used 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 have 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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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp244.

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Date of creation: 27 Feb 2008
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Handle: RePEc:iis:dispap:iiisdp244

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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, Elsevier, vol. 9(1), pages 90-104.
  2. Beck, Thorsten & Klapper, Leora F. & Mendoza, Juan Carlos, 2010. "The typology of partial credit guarantee funds around the world," Journal of Financial Stability, Elsevier, Elsevier, vol. 6(1), pages 10-25, April.
  3. 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.
  4. Koen Rossel-Cambier, 2010. "Do Multiple Financial Services Enhance the Poverty Outreach of Microfinance Institutions?," Working Papers CEB, ULB -- Universite Libre de Bruxelles 10-058, ULB -- Universite Libre de Bruxelles.
  5. 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.
  6. 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.
  7. Giovanni Busetta & Alberto Zazzaro, 2009. "Mutual Loan-Guarantee Societies in Monopolistic Credit Markets with Adverse Selection," Mo.Fi.R. Working Papers, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences 33, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  8. Ayadi, Rym & Gadi, Salim, 2013. "Access by MSMEs to Finance in the Southern and Eastern Mediterranean: What role for credit guarantee schemes?," CEPS Papers, Centre for European Policy Studies 8061, Centre for European Policy Studies.
  9. Karel Janda, 2011. "Credit Guarantees and Subsidies when Lender has a Market Power," Working Papers IES, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies 2011/18, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2011.
  10. 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, Institut National de la Statistique et des Etudes Economiques, DESE g2008-07, Institut National de la Statistique et des Etudes Economiques, DESE.
  11. Ricardo Bebczuk, 2010. "Acceso al financiamiento de las PYMES en Argentina: Estado de situación y propuestas de política," CEDLAS, Working Papers, CEDLAS, Universidad Nacional de La Plata 0104, CEDLAS, Universidad Nacional de La Plata.
  12. 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, Elsevier, vol. 10(C), pages 76-86.
  13. Aliona Cebotari, 2008. "Contingent Liabilities," IMF Working Papers 08/245, International Monetary Fund.
  14. 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.

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