Conclusion

Although there is no universal prescription for increasing SME access to finance, credit  guarantees are playing an important role in filling the SME financing gap in Asia. At the  same time, credit guarantees open the door for a debate on potentially negative effects.  Because  of  the  strong  public  nature  of  credit  guarantees,  business  sustainability  is  a 

critical concern. Balancing government intervention with a private-led guarantee industry is needed. Innovation and technology are key to developing demand-driven and risk-

based credit guarantee products. SME data infrastructure is also crucial to establishing  a  sustainable  credit  guarantee  system  at  the  national  level.  Such  data  infrastructure  will  support  CGCs  in  proper  pricing  and  risk-based  management.  Promoting  credit  guarantee literacy for all stakeholders is a necessary component of the development of  a national credit guarantee industry. A comprehensive policy and regulatory framework  on credit guarantees should be well-designed to avoid market distortions and to facilitate 

innovative products, given the industry’s public nature in Asia.

References

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2.3.2 Sustainable Credit Guarantee Schemes for SMEs:

Lessons from the OECD Area

In many countries, CGSs represent a key policy tool to address the SME financing gap,  while limiting the burden on public finances. This section aims to improve understanding  about the role, impact, and sustainability of CGSs by investigating their characteristics  along several dimensions, such as ownership structure and funding, the legal regulatory  framework, and the operational characteristics of the schemes, including type of services, 

eligibility criteria, guarantee assignment process, and credit risk management. The section shows that public guarantee schemes are widespread across OECD and non-OECD

economies  as  a  direct  policy  tool  to  alleviate  financial  distress  by  SMEs.  The  section  evaluates the use of CGSs in the aftermath of the 2008/09 financial crisis, asserting that  the design of CGSs is crucial for their effectiveness and sustainability.48 A. Introduction In the aftermath of the 2008/09 global financial crisis, in many OECD countries CGSs  have represented an instrument of choice for policy makers to improve access to finance  by SMEs and young firms. During 2008–2010, new guarantee programs were set up and  existing loan guarantee programs ramped up as part of government anticrisis packages.  In light of the uncertain recovery, in 2011–2012, many of these programs were continued or, as part of policies intended to stimulate growth and job creation, some new elements  were introduced, tailored to specific categories of SMEs.  The expansion of public guarantee instruments, as well as the increased support to private  guarantee  schemes,  through  funding  or  coguarantees  has  triggered  greater  demand for  monitoring  and  evaluation.  This  demand  concerns  in  particular  the  effectiveness  and sustainability of credit guarantee policies in stormy fiscal times. At the same time,  there is a need to distinguish the specific challenges arising from the extensive use of  credit guarantees as a countercyclical tool as opposed to their ordinary functioning as a  structural element of financial systems. Indeed, CGSs are a long-established risk transfer mechanism to ease access to finance  for firms and entrepreneurs constrained by information asymmetry, limited credit history,  and  lack  of  collateral,  which,  in  many  countries,  have  existed  since  the  beginning  of  the 20th century (Beck, Klapper, and Mendoza 2010). Undoubtedly, their diffusion and  relevance have increased significantly over the last several decades, across OECD and  non-OECD countries alike. If in OECD countries their late expansion is largely related to the  increasing difficulties for SMEs in accessing debt finance, in several non-OECD countries  CGSs have also developed rapidly as a mechanism for expanding credit markets and  improving financial inclusion.  This section illustrates the evidence on expansion of CGSs in OECD countries, taking 

into account both public schemes and private or public–private schemes. Structural

and  emerging  challenges  for  the  effectiveness  and  sustainability  of  these  schemes  in 

the postcrisis environment are highlighted, drawing some key lessons from the OECD  experience in sustaining SME financing through guarantees.

B. Credit Guarantee Schemes across OECD Countries: