Public credit guarantees have become a popular instrument to expand lending to small and medium enterprises (SMEs). More than 30 percent of credit guarantee schemes around the world have some form of state ownership. Public credit guarantee schemes are particularly important in developing countries, where they are the main type of guarantee scheme.

Although public guarantee schemes are widely popular, two important questions regarding state intervention in these schemes still linger. Is state intervention needed for credit guarantees to be sustainable over time? Have public credit guarantees been effective in expanding finance to constrained firms and enhancing their performance? In a new policy brief, the World Bank Malaysia Hub attempts to provide answers to these questions based on theoretical and empirical discussions.