Loan Guarantee Programs for Small-scale Borrowers: Are they Working?
The paper cites reasons for loan guarantees and briefly describes the two government corporations namely, the Quedan Rural Credit and Guarantee Corporation and the Small Business Guarantee and Finance Corporation of Philippines, involved in loan guarantee programs.
The paper quotes the findings of two Philippine and two foreign studies of three loan guarantee programs to show that:
- The total number of loans given were small;
- The private bank participation was low;
- The guarantee fee covered only a fraction of operating costs of these programs;
- Time consuming procedures contributed to high costs;
- Loan guarantees failed to substitute for traditional forms of collateral;
- Such program are non sustainable in long term without continuous intervention.
The paper lists some of the improvements that have since been made in an attempt to enhance the performance and reach of the program. They, however, state that these attempts have made little impact on the overall scenario.
The paper concludes by recommending an audit and an immediate review of such interventions to enable policy makers to make an informed decision regarding the future of these programs.
