SME Finance Policy Guide

G-20 SME FINANCE POLICY GUIDE
55
governments and public funders. In several countries
(e.g., India, Bangladesh, Colombia, Mali, Afghanistan)
they have contributed to increasing financial access.
But poorly designed apexes can waste time money
and fail to meet their own goals. While each country
has a different context that affects the success of an
apex, the lessons outlined above can help governments
and funders avoid major pitfalls.
C.3.3 PARTIAL CREDIT GUARANTEE
SCHEMES
Many countries operate partial credit guarantee
schemes (PCGs). In developed countries, such schemes
have been operational for several decades, while their
use in developing countries is more recent. Credit
guarantee schemes can be organized in different ways
but their core objective is the same: to guarantee the
loans offered by a financial institution to a borrower
subject to both the payment of a premium and a range
of other rules and conditions. When default occurs,
the lender is compensated by the guarantor as per the
initial agreement. In some arrangements, the guarantor
can benefit from a counter-guarantee from a higher
level guarantee institution that is also subject to the
payment of a premium.
Credit guarantee schemes are one of the most marketfriendly
types of interventions, as private financial
institutions usually retain a primary role in the screening
of borrowers and final lending decision. Unlike
other types of interventions, such as state banks or
directed lending arrangements, they may generate
fewer distortions in the credit market and may lead to
better credit allocation outcomes 61 ). Guarantee schemes
may prove an effective vehicle for reaching underserved
groups such as start-ups and small firms. They
may also generate positive externalities by encouraging
banks to get into the SME market and improving their
lending and risk management systems. Guarantee
schemes have also been used for countercyclical
purposes and the recent financial crisis highlighted the
importance of this countercyclical role.
Credit guarantee schemes can be organized in different
ways, such as mutual guarantee institutions, credit
guarantee banks, or credit guarantee funds owned and
operated entirely by the public sector or by a combination
of public and private shareholders. Some countries
maintain different types of credit guarantee schemes.
Mutual guarantee institutions are typically private institutions
with a mutual legal structure created by the beneficiary
SMEs. Their capital is provided directly by the SMEs
that apply for a loan guarantee in the form of cooperative
or mutual shares. Each member has equal voting rights in
electing the general assembly and board of directors.
Mutual guarantee institutions are usually run by entrepreneurs,
bringing an SME perspective to risk assessment
and management. They are very common in Europe but
also exist in some emerging countries.
Guarantee banks are legally structured as private foundations
or joint stock companies, and can be owned by
a variety of private shareholders such as chambers of
commerce and industry, commercial or savings banks,
banking associations, and insurance companies. They
can be regulated and supervised as other financial
institutions. Guarantee banks are an important component
of the German credit guarantee system.
Partial credit guarantee schemes created, funded, and
managed by the public sector (the government and/
or the central bank) are one of the most common
types of guarantee schemes. They are usually legally
independent entities and can be managed independently
or by another public institution such as a state
development bank or state development fund. In
many cases, the ownership structure is mixed, combining
the state, commercial banks, and other private
shareholders. In a few cases, participating banks are
the dominant shareholders.
61 Beck and De la Torre, 2006