Guarantee Funds for Small Enterprises

This detailed guide sets itself the goal of describing the uses, methods, and pitfalls of guarantee funds, and does so in a clear and easy-to-understand way, excellently arranged for use in institutions supporting small or micro enterprises. A credit guarantee is a financial product that a small entrepreneur can use as a partial substitute for collateral. It is a promise by a guarantor to pay all or part of a loan if the borrower defaults. Guarantee funds may be created by groups of entrepreneurs forming mutual guarantee associations or by government departments or development agencies. Such funds are of particular help to microenterprises without a proven track record: bankworthy, but without the necessary collateral or positive credit reputation.

The manual is aimed at people who have to manage guarantee funds and contains the following chapters:

  1. Introduction
  2. The role of credit guarantees
  3. Guarantee fund models, e.g. funded v unfunded schemes, individual guarantees v portfolio guarantees, enterprise oriented v institution oriented, ex-ante v ex-post guarantees, mutual guarantee associations
  4. Eligibility criteria for enterprise schemes and institution schemes
  5. Risk sharing; taking and liquidating collateral
  6. Setting the size of the guarantee fund
  7. Operating procedures and processes
  8. Relation management and marketing, including the risk of moral hazard
  9. Organisation, management and staffing
  10. Pricing and financial sustainability
  11. Accounting and financial reporting
  12. Performance monitoring

The manual concludes with two appendices which offer examples of common clauses in different types of guarantee contract. Each chapter concludes with a suggested workshop exercise aimed at helping institution staff conceptualise and develop their understanding of the guarantee fund in their own institution.

This booklet is extremely practical and deals with its subject in a clear, concise, user-friendly style. It presents a balanced view and stresses that guarantee funds are not uniformly useful or even uniformly available. The result is a manual that is informative and educational without being heavy. The ILO International Training Centre in Turin offer training courses to complement this manual.

  • Resource type
  • Author Deelen, L.; Molenaar, K.
  • Organisation
  • Year of Publication2004
  • Region
  • LanguageEnglish
  • Number of pages142 pp.

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