SME Finance Policy Guide

78 GLOBAL PARTNERSHIP FOR FINANCIAL INCLUSION
structure at the outset. The most effective apexes are
those that are politically independent, with professional,
effective boards and capable management.
• Select the right institutions. Apexes need robust
selection criteria and appraisal procedures and
should focus not on the number of the financial institutions
they fund, but rather the quality of those
institutions.
• Design the mission and instruments to fit with the
market context. Apex loans should be tailored to the
cash flow patterns and planning needs of financial
institutions. In more mature markets, apexes might
want to consider broadening their range of products
to include quasi-equity, equity, or guarantees.
• Manage an apex portfolio based on performance. To
ensure good performance, apexes need to have good
quality data on financial institution portfolios,
review their progress on a regular basis, and be willing
to act in the case of poor performance.
• Provide adequate support for building the staff
capacity of the apex itself. At an early stage of its
development, funders of apexes (including governments)
should ensure that the apex has the right
team in place and is receiving technical support to
build its own staff capacity.
• Encourage apexes to crowd in commercial local
funding by having this as one of their objectives.
Funders of apexes, including governments, should
encourage apexes to collaborate and share information
with local banks and international commercial
lenders. 92
Partial Credit Guarantee Schemes
Credit guarantee schemes are considered one of the
more market-friendly types of interventions, as they
can generate fewer distortions in the credit market
than state banks and other direct public interventions,
and may lead to better credit allocation. Key features of
a well-designed scheme include:
• Eligibility criteria: Guarantee schemes should target
SMEs through ceilings on turnover, number of
employees, and/or size of the loan. Restrictions on
sectors or types of loans should generally be
avoided.
• Approval rules and procedures: Final approval or rejection
of an application should occur within two
weeks.
• Coverage ratios: Coverage ratios should ensure sufficient
protection against default risk while maintaining
strong incentives for effective loan origination
and monitoring.
• Fees: Fees should be risk-based and contribute to the
financial sustainability of the scheme.
• Payment rules and procedures: Payment rules should take
into account the effectiveness of the collateral and
insolvency regimes. Schemes in LDCs should base
payments on default events while ensuring incentives
for effective debt collection.
• Capacity building: PCGs can support the capacity of
banks to provide SME finance and good practices.
• Evaluation mechanism: Such a mechanism is necessary to
measure outreach, additionality, and sustainability.
• Supervision: Oversight is a key element to ensuring the
soundness of operations.
• Risk weighting for banks’ prudential requirements: A well
designed and financially robust guarantee scheme
should allow regulators to assign a lower risk weight
to exposures covered by the guarantee.
Government Procurement from SMEs
The public sector can be a major buyer of goods and
services from SMEs, and can more effectively link
SMEs to supply chain finance and to factoring through
that contractual and payment relationship. Electronic
security and signature laws, and market facilitation
platforms, can facilitate supply chain and factoring
transactions with SMEs.
It is also critical that governments pay SMEs promptly,
in order to avoid otherwise viable SMEs incurring cash
flow problems that can cause them to scale back or
even close business activity.
92 Extracted from Forster, Sarah and Duflos, Eric – “Re-assessing the Role of Apexes: Findings and Lessons Learned”, Forthcoming, CGAP,
2011.