Do Credit Guarantees Lead to Improved Access to Financial Services? Recent Evidence from Chile, Egypt, India and Poland
This paper takes a look at the effect that credit guarantee schemes (CGS) have on access to financial services in four countries, based on case studies carried out in Poland, India, Egypt and Chile. The thesis being tested was “CGS are effective in promoting sustainable changes in lender behaviour, leading to financial sector deepening” (ie, increasing access to financial services for those who previously had restricted or no access, and increased provision of relevant products and services to the resulting new clients), depending on the presence of certain macro and micro factors, which the authors list. The study determined that CGS did have a positive impact on access to financial services, at least in services directly related to CGS, while it was much harder to see the effect of CGS on the wider condition of financial services provision in the four case studies. As this is a highly technical paper, it is not recommended for other than policy-makers.
The paper is divided into two rough sections, a summary and conclusions section which forms the body, and ten appendices which go into detail about the case studies, the questionnaire used to build the studies and an efficient summary of a 1997 document of use to the study’s researchers, Credit Guarantee Schemes for Small Business Lending. Among the principal conclusions is the confirmation that certain factors need to be present in order for CGS to promote the deepening of the financial sector, both on the large (macro) scale and on a specific (micro) level. Macro factors include a competitive banking environment, a dynamic rather than closed business sector, a supportive and efficient supervisory agency, and a credit bureau for maintaining and disseminating information. Micro factors include a spirit of competition among lenders, a desire on their part to develop long-term, permanent deepening of the financial sector, an emphasis on long-term sustainability of lenders, a participatory approach to setting shared objectives between lenders and borrowers, and the clear communication of the benefits to lenders of such a deepening of the financial sector. This paper also offers the converse, a list of the macro and micro failures that combine to work against CGS helping to deepen the financial sector. In general, CGS were particularly successful in encouraging the development of the financial sector in Chile, with varying degrees of success in the other three case studies.
This study is a useful tool for policy-makers and provides a worthy argument in favour of the use of CGS, though it does not claim to look at the general viability of CGS. The executive summary contains a particularly useful table which sets out a list of the factors leading to success and factors which lead to failure in CGS.