Do Credit Guarantees Lead to Improved Access to Financial Services? Recent Evidence from Chile, Egypt, India and Poland

This paper discusses the contribution of Credit Guarantee Schemes (CGS) to financial sector deepening. It states that four case studies were used to determine whether sustainable changes in the behavior of lenders towards the small and medium enterprises (SME) sector come about as a direct or indirect result of CGS activity. It also states that the case studies demonstrated positive correlation.

The paper presents the key success factors necessary for CGS to effectively promote financial sector deepening:

• Macro factors that enable successful CGS include:
  • Competitive banking environment;
  • Dynamic business sector;
  • Facilitation of policy and monetary framework;
  • Supportive and efficient supervisory agency;
  • Credit bureau for information dissemination.
• Some of the important micro factors that the CGS design should possess include:
  • Encouraging competitive behavior among lenders;
  • Vying for permanent financial sector deepening;
  • Understanding the financial sector;
  • Emphasizing on long-term financial sustainability of lenders;
  • Adopting participative approach to set shared objectives;
  • Clearly communicating benefits to lenders.

The paper also presents corollary factors that may result in the failure of CGS to achieve its objectives. It concludes that although CGS serve as accelerators, they are not the drivers of financial sector deepening.