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Partial Credit Guarantees: Principles and Practice

Patrick Honohan

Abstract Partial credit guarantee schemes have experienced renewed interest from governments keen to promote financial access for small enterprises.While the market can find uses for partial credit guarantees, the attractions for public policy can be illusory: indeed their most attractive feature for myopic politicians may be the ease with which the true cost of guarantees can be understated, at least at the outset.In practice, the actual fiscal cost of existing schemes has varied widely across countries and has represented a high per dollar subsidy in some cases. Despite the recent application of some innovative techniques, the social benefit of such schemes has proved difficult to estimate, not least because their goals have been vague.Operational design has influenced the cost and apparent effectiveness of different schemes and has also varied widely.Clear and precise goals, against which performance is regularly monitored, realistic pricing verified by consistent and transparent accounting, and attention to the incentive features of operational design, especially for the intermediaries, are among the prerequisites for such schemes to have a good chance of truly achieving improvements in social welfare.

Last updated 28 August 2014 by IIIS (Email).