Credit Guarantee Schemes – Are They Efficient? Experience from European Union Countries

Abstract

The paper aims to assess selected elements of the business models of credit guarantee schemes (CGSs) implemented in 20 European Union countries within the financial framework between 2007 and 2013. This paper focuses on the CGSs’ financial additionality that depends mainly on how these programs are managed, the institutions implementing them, the objectives set and their distribution constraints. We analyse the implementation costs and the use of the funds allocated to implement the schemes. To reach the goal, we used several methods: the Kruskal‑Wallis by ranks, the median test, discriminant analysis, multidimensional scaling, and correlation. We also did the power analysis. We discovered that the efficiency of CGS implemented by non‑governmental organisations, mutual guarantee funds and regional agencies is related to the level of regional development. The relationship is not visible only when banks are engaged, which may be due to the impossibility of assigning a bank’s activities to a single region. However, we did not find differences in efficiency between types of organisations that implement CGSs. The answers to the research questions posed in the article can help policymakers and researchers conclude whether it is cost‑effective to continue supporting CGSs and whether the management of these schemes should change. The paper contributes to the economic policy theory in the area of state aid to SMEs and public finance.

Credit guarantee schemes in Albania and their importance for developing SMEs

“…CGSs reduce financing obstacles and improve a firm's ability to access bank financing, especially for small and micro companies [8]. CGSs aim to increase the creditworthiness of SMEs by guaranteeing the loans provided by financial institutions [30]. Moreover, credit guarantees decrease the risk of insolvency and indirectly lower the cost of financing to reduce differences in the availability of external capital for companies of different sizes.…”

“…A recent paper [30] aims to assess selected elements of the business models of credit guarantee schemes implemented in 20 European Union countries within the financial framework between 2007 and 2013. The paper focuses on the CGSs' financial additionality that depends mainly on how these programs are managed, the implementing institutions, the objectives set and their distribution constraints.…”