Credit markets for small and medium enterprises (SMEs) are characterized by market failures and imperfections, which provide a rationale for government intervention. Credit guarantee schemes (CGSs) are a common form of intervention. A CGS provides third-party credit risk mitigation to lenders by absorbing a portion of the losses on the loans made to SMEs in case of default, in return for a fee.
Public CGSs can be an effective form of government intervention in credit markets to improve access to finance for SMEs. However, CGSs need to be designed and implemented in a financially sustainable manner.
The World Bank Group and FIRST Initiative convened and provide secretariat support to a Task Force for the Design, Implementation and Evaluation of Public Credit Guarantee Schemes for Small and Medium Enterprises, which represents international associations of both CGSs and lenders.
This consultative document outlines a set of good practices, which can represent a global reference for the design, execution and evaluation of public credit guarantee schemes (CGSs) for SMEs.
The Task Force has identified a set of key principles for the success of public CGSs, which cover the following areas:
- Legal and regulatory framework
- Corporate governance and risk management
- Operational framework
- Monitoring and evaluation
