SME Guarantee Schemes: A Summary
This paper describes credit guarantee schemes for resolving the problems caused by the under-development of the financial system.
The paper presents the obstacles to small and medium enterprises' (SMEs) obtaining access to financial services:
- Risk factor;
- Lack of adequate collateral;
- High transaction costs resulting in low profitability.
The articles, in the initial part of the paper, deal with the subjects of:
- Access to credit;
- Regulatory framework;
- Rationale for credit guarantee schemes;
- Questions as to the sustainability of such schemes;
- Relation of guarantee systems to the formal financial system.
The subsequent articles in the paper describe schemes that have been in operation and their experiences including:
- Fondo Nacional de Garantias (FNG, the National Guarantee Fund of Colombia);
- FUNDES, the Swiss-based international fund for Latin American countries.
Other articles in this paper review schemes in Chile, East Asia, and Western Europe. The final article discusses various viewpoints held with respect to the role of credit guarantee programs and outlines the key features of such programs.
The paper draws the following conclusions on the credit guarantee schemes based on the feedback of the groups:
- Financial instrument is needed to widen access for SMEs to bank credit;
- Regular monitoring is required;
- Formal supervision of guarantee organizations is necessary;
- A more comprehensive evaluation of schemes is needed.
