Abstract
Credit guarantee schemes have become a popular instrument to increase access to credit for financially constrained firms, typically small and medium-sized enterprises (SMEs). This government intervention of using credit guarantees as techniques for increasing access to finance for certain borrowers is argued to be useful, but their success and sustainability depend on many factors. Since 1994, the Jordan loan guarantee corporation through its several programs aims to support SMEs and enable them to have access to finance at a reasonable cost. This paper provides an evaluation analysis and impact assessment of credit guarantee system in Jordan by focusing on the Jordanian loan guarantee corporation (JLGC) performance. It found a positive impact on the Jordanian economy, but more emphasis on the guarantee system is needed with cooperation between all parties of the banking system, Central bank, and JLGC to achieve policy goals. Also it examines the government's recent initiative in the National Program for Finance and Loan Guarantee to encounter Corona crisis and found that it enhances the positive impact on the economy. In addition, more deep assessments that consider financial sustainability and economic additionally will be fruitful, as well as an assessment of credit guarantees against alternative policy instruments.
Highlights
This fact is widely known that small and medium enterprises (SMEs) play a significant role in most economies through their contribution in employment creation, growth and development [1, 2], they are seen as the engines of growth, and this role is crucial in the developing countries [3, 4]
After reviewing the literature on both economic roles for small and medium enterprises and public credit guarantees, we focus on Jordan loan Guarantee Corporation, its programs, performance, and impact on the economy
Its trend is shown in figure 8, it decreased sharply in the years following the financial crisis, but it has again steadily increased since 2014. This may lead us to conclude that Jordanian loan guarantee corporation (JLGC) must play a better role in helping to stabilize the economy during crises as in AECM reports they indicate that European countries used financial crisis. credit guarantee schemes as a tool to avoid and overcome the Figure 8. outstanding gurantees to GDP
Summary
This fact is widely known that small and medium enterprises (SMEs) play a significant role in most economies through their contribution in employment creation, growth and development [1, 2], they are seen as the engines of growth, and this role is crucial in the developing countries [3, 4] This kind of firms (SMEs) are generally hampered by several obstacles most important is credit constraint and lack of access to bank loans [5, 6]. In order to enable firms to obtain credit or improve the terms and conditions under which borrowing can take place, the guarantor must bear part or all of the credit risk, which reduces the risk that the bank may face This tool can help to overcome market failure regarding resource allocation. Reham Abu-baker and Mohammad Adeinat: The Economic Impact of Credit Guarantees in Jordan
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