Credit Guarantee Schemes for Small Enterprises
| Title | Credit Guarantee Schemes for Small Enterprises: An Effective Instrument to Promote Private Sector-Led Growth? |
| Abstract | It is argued that well-implemented credit guarantee schemes can improve small enterprises' access to credit and assist the integration of small enterprises in the formal financial market. This will ultimately translate into improved business performance and job creation. However, in spite of their potential as development engines, it remains doubtful if credit guarantee schemes are indeed efficient mechanisms to promote private sector-led growth. Critics do not see sufficient reason for government intervention by means of publicly-funded schemes and question the cost-effectiveness of such schemes. Firstly, it is doubtful whether guarantee schemes are a first-best measure to address the market failures identified in the credit market. Establishing credit bureaus and initiating legal reforms may be better suited to overcome asymmetric information and small firms' difficulties in pledging their property as collateral. Secondly, it is unclear if guarantee schemes accomplish the financial sector changes as well as the financial and economic additionality they are designed to achieve. Little conclusive evidence on the benefits of guarantee schemes exists. Many schemes, particularly in developing and emerging economies, have achieved only limited outreach. On the other hand, some well-established schemes both in emerging and industrialised countries have been able to reach a large number of small firms. |
| Date | 2003 |
| Language(s) | English |
| Pages | 88 pages |
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