Credit Guarantee Funds Research Articles

Investigating the Impact of Business Development Fund Ltd's Credit Guarantee on Small and Medium Enterprises in Rwanda: A Comprehensive Analysis

In Rwanda, the Business Development Fund Ltd aims to support the initiation, growth, and success of Small and Medium Enterprises (SMEs) by providing credit guarantees, facilitating their access to bank financing. This study explores the efficacy of the credit guarantee fund in stimulating SME growth in Rwanda, particularly within Kigali City. It delves into the accessibility of the BDF Ltd credit guarantee fund for SMEs, assesses its correlation with employment generation, evaluates its influence on SMEs' sales turnover, and analyzes its responsiveness to borrower demands from 2011 to 2013. Employing an explanatory research approach, this study employs a mixed-methods approach, combining qualitative and quantitative methodologies for data collection. A sample of 98 units was selected, utilizing interviews for primary data and document analysis for secondary data. Statistical analysis, including SPSS and tools like Kendall's tau correlation and regression analyses, was employed to scrutinize the relationship between various variables. The findings indicate significant hurdles faced by SMEs in Kigali in accessing the fund, with 95.2% of respondents citing challenges such as prolonged application processes, increased collateral requirements, low bank utilization of the fund, additional bank prerequisites, and perceived inequities. The research reveals a noteworthy positive relationship (r = .37, p <.05, one-tailed) between the guaranteed amount for SMEs in Kigali and employment creation, where an estimated 3,333,333 RWF guaranteed amount predicts the creation of an additional job. Moreover, the study underscores that credit guarantees contribute positively to the beneficiaries' sales turnover and notes that the BDF Ltd has effectively met borrower demands during the 2011-2013 period. This research presents a comprehensive analysis of the impact of credit guarantee funds on SME growth in Rwanda, shedding light on challenges faced by SMEs in accessing these funds and highlighting the fund's substantial role in fostering employment and bolstering sales turnover within the SME sector. Keywords: Business Development Fund Ltd, SMEs, Credit guarantee fund, Kendall's tau correlation, Banks.

Credit pricing for financing of small and micro enterprises under government credit enhancement: Leverage effect or credit constraint effect

The pricing of financing credit for small and micro enterprises (SMEs) under government credit enhancement includes an important pattern to solve the financing difficulties of SMEs. Using the data of SME credit guarantee funds from Wenzhou, this paper studies the cost of credit under government credit enhancement from three dimensions: credit in different periods, category of credit granting enterprises, and factors affecting the pricing of credit. In the pricing process of credit and guarantee loans to SMEs, the leverage effect is dominant. However, from the third quarter of 2019, the credit pricing process shows the credit constraint effect. This paper found that the leverage effect occurs in the loans of non-high-tech and nonentrepreneurial enterprises, and the credit constraint effect is dominant in the loans of high-tech enterprises and entrepreneurial enterprises. Especially for high-tech enterprises, regarding the elements of interest rate premium, the statistically significant difference involves the amount and term.

Tender Bonds: Determinants, Procedures and Implications for Credit Guarantee Funds

The purpose of the article is to outline a new procedure that will enable economic operators to increase their access to tender bonds provided by funds for credit guarantees which are among the non-monetary forms of submitting a deposit in public procurement procedure.
 Methodology used to present the topic and to achieve the goal of the article is mainly based on the expertise and professional experience of the author.
 Results of the research outline that despite being properly established in Polish law, tender bonds have as yet been scarcely applied by economic operators requesting to participate in public contract award procedures. Moreover, the majority of credit guarantee funds focus on providing this type of sureties, with the consequence being an increasingly declining share of credit sureties and changes in these funds’ business profile. In order to continue this increase in tender bond sale, credit guarantee funds need to modify their existing procedures so as to make this type of security more popular among economic operators.

The economic and social benefits of the government-backed credit guarantee fund under the condition of an economic downturn

In this study, we seek to explain how to achieve more positive externalities though public guarantee schemes, which are currently very popular among policymakers, as the number of countries implementing this policy illustrates. With empirical evidence on high-tech enterprises supported by government-backed credit guarantee funds in Taizhou, China, we propose a series of new understandings of the economic and social benefits of the government-backed credit guarantee scheme. The results confirm that bank credit does not promote enterprises to produce more economic and social benefits. However, government-backed credit guarantee funds are conducive to enterprises producing more economic benefits while their impacts on the enterprises' social benefits are not clear. The heterogeneity in guarantee intensities is incorporated into the model by constructing random parameter logit models with panel data.

Support of innovation activity in small and medium-sized enterprises in the Greater Poland Voivodeship

Motivation: Small and medium-sized enterprises, due to their large number, play an important role in the development of the Polish economy. Therefore, the focus should be on creating the right frameworks for their functioning — they should allow them to develop and stimulate the implementation of innovative solutions. Business support organizations (BSOs) are one of the entities that can facilitate development ant stimulation. The main types of BSOs in Poland are: technological parks and incubators, academic business incubators, centers for technology transfer, business angels networks, local/regional load funds, credit guarantee funds, and training and consulting centers. These entities should contribute to the implementation of new solutions in the surveyed enterprises and improve their competitive position. Aim: The aim of the article is to identify impact of business support organization on the innovation activity in industrial enterprises in the Greater Poland Voivodeship. The research hypothesis is the claim that BSOs increase the odds of implementation of new products and process in enterprises, but their impact will be different. The hypothesis will be validated on a sample of 442 small and medium-sized, manufacturing companies, which are located in Greater Poland Voivodeship. To carry out the study a multi-factor logit regression method will be used. Results: The research hypothesis is confirmed — BSOs increase the chances on innovation activity but their influence is different. Most effective are training and consulting centers and financing organizations, but this institution stimulate the implementation of new products and processes on the scale of the enterprise and innovation centers (technology parks, academic business incubators and technology transfer offices) of the country.

Legal Measures of Nepalese Financial System: An Overview

Nepal has banks and financial institutions which are regulated by Nepal Rastra Bank under Nepal Rastra Bank Act, 2058 BS and Banks and Financial Institutions Act, 2073 BS. There are four categories of banks and financial institutions in Nepal which are Class ‘A’, Class ‘B’, Class ‘C’ and Class ‘D’ institutions. Class ‘A’ refers to commercial banks, Class ‘B’ refers to Development Banks, Class ‘C’ refers to Finance Companies and Class ‘D’ refers to Micro Finance Companies. Deposit Insurance and Credit Guarantee Corporation undertakes credit guarantee for loans provided to priority sector by commercial banks under Deposit and Credit Guarantee Funds Act, 2073. Currently there is compulsory provision to make deposit guarantee of 3 Lakh of each customer account. Nepal has also non banking institutions. Citizen Investment Trust encourages people to save and mobilize savings for productive activities and Employees Provident Fund work as an employee trust to render post-retirement benefits to its clients. Citizen Investment Trust Act, 2047 and Employees Provident Fund Act, 2019 are governing laws. Insurance Business is playing important contribution in Nepalese financial system. Insurance Board is the regulators of insurance companies, which are established under Insurance Act, 2049. Moreover, Securities business is also growing in Nepal. Primary, Secondary and Over the Counter market are used for transaction of securities in Nepal which are operated under Securities Act, 2063. The liberalization policy adopted by the Government of Nepal in 1980’s have created supportive and conducive legal regime for banking sector. Consequently, joint venture banks have been established with foreign investment. Currently Nepal has accepted three pillar economies which are private, public and cooperative sectors. So, it is following mixed economy to run the country which is applicable even in banking business as well.

Financing Large-Scale Mitigation by Smallholder Farmers: What Roles for Public Climate Finance?

There is increasing interest in accessing climate finance to support low-emission, climate resilient agricultural development, but little is understood about how climate finance can be deployed to catalyse large-scale adoption of mitigation practices by smallholder farmers. This study assesses the potential roles of public climate finance in enabling smallholder farmers in Kenya’s dairy sector to adopt low-emission farming practices. Drawing on multiple studies conducted as part of the design of a nationally appropriate mitigation action for the Kenyan dairy sector, it examines financing needs, institutional arrangements for channelling climate finance, and appropriate financial instruments. The study finds that financially profitable investments can be made by dairy farmers, but credit financing on commercial terms is not viable for dairy farmers lacking off-farm income sources. Dairy farmers make little use of formal financial institutions for several reasons, and while financial institutions have a strong interest in increasing their finance to the dairy sector, they face a variety of capacity constraints. Climate finance may have roles to play in strengthening linkages between dairy farmers and financial institutions, building capacities of different actors in the dairy and finance sectors, and enabling both farmers and financial institutions to manage risks. Concessional loans, credit guarantee funds and grants are all relevant financial instruments. If agriculture is to attract climate finance in support of large-scale mitigation action, a diversified, demand-responsive approach to financial innovation is required that engages different types of financial institution to support access to both savings and credit services tailored to the varied needs of men and women dairy farmers and the dairy value chain actors they work with.

The Role of Credit Guarantee Schemes in the Development of Small and Medium-Sized Enterprises with an Emphasis on Knowledge-Based Enterprises

Small and medium-sized enterprises (SMEs) in their growth stage reach the point where, on the one hand, personal resources do not meet their needs, and, on the other, they do not have enough collateral to attract external finance. Access to finance can be facilitated by obtaining loans from financial institutions backed by governmental credit guarantees. Therefore, the development of a sound credit guarantee scheme will be an important step in filling the financing gap of SMEs. We investigate the situation of the credit guarantee scheme for SMEs in Iran by using the available data and interviews with activists from this field with the grounded theory method. We show the weaknesses of the Iranian credit guarantee scheme, and based on the analysis, present solutions and policy recommendations in accordance with the social and economic environment of the Islamic Republic of Iran. The most important problem is the lack of a credit database for comprehensive assessment of SMEs, especially knowledge-based enterprises. The lack of a robust database makes it impossible to carry out a comprehensive evaluation because these models require a large amount of data. The lack of accurate models makes it difficult to rate credit status and thus to issue credit guarantees. In addition, the current level of the capital of the credit guarantee funds in Iran is not sufficient given the large number of SMEs in the country.

Technical advancement and the stimulation of companies innovation activity by business support organisations in developed regions

Motivation: Currently, an increasing role in achieving the competitive advantage is attributed to knowledge and its conversion to new products and services. For this reason, institutions have been set up, which are designed to stimulate the innovation activity in the economy. Their development was initiated in developed countries, and then moved to the developing countries. Aim: The article presented the influence of business support institution, which most frequently occur in the Polish reality, i.e., technological parks, technological incubators, academic business incubators, technology transfer centers, business angel networks, local or regional loan funds, credit guarantee funds and training-advisory centers for the innovation activity of industrial companies with consideration of the manufacturing techniques used by them in the developed regions of Poland, i.e., from the Lower Silesia, Silesia and Greater Poland. Results: Innovation attributes were distinguished according to the standards of studying the innovation activity contained in the Oslo methodology. For the conduct of analyses the probit modeling was used. The hypothesis of the article is the statement that the innovation of companies will grow after establishing cooperation with business support institutions, while its level will be bigger when the level of manufacturing technique used by the companies is bigger.

The effect of credit guarantees on SMEs' R&D investments in Korea

The Korean government has invested a significant amount of resources through credit guarantee funds for promoting SMEs' survival, performance and R&D investments. This study attempts to identify the determinants of providing credit guarantees and estimates their effects on firms' R&D expenditures. It takes into account the heterogeneity of various characteristics of firms when looking at credit guarantees and in-house R&D investment relationships. This study identified factors that enhance the efficiency of funds and their effects on firms' R&D investment behaviours. It enables feedback effects on the public funds that were selected by the guaranteed firms. It proposes a number of policy measures to promote a better balance between public and private investments to reduce risks of business failures.

Improving access to finance for small- and medium-sized enterprises in the road sector: the CrossRoads Guarantee Fund in Uganda

Credit guarantee funds are a tried-and-tested instrument to improve access to finance. This paper aims to share experience from the CrossRoads Guarantee Fund in Uganda. The Fund was established in 2012 as one of the interventions under the CrossRoads Programme funded by the Department for International Development (DFID) and the European Union (EU) to build capacity and competitiveness in Uganda's roads sector. The objective of the Fund is to improve access to finance for contractors/consultants. The Fund has created significant benefits and impacts that include enabling contractors to secure bid securities and performance bonds valued at Ugandan Shillings 11.7 bn (US$4.7 m); improving relationships between financial institutions and contractors; and significant crowding-in by financial institutions. Important lessons to guide scaling up or replication of similar initiatives are emerging. First, a guarantee fund creates significant behaviour change on both the supply and demand sides of the financial services market. Second, high leverage and impact can be achieved from a modest investment. Third, fund access conditions should be stringent enough to minimize moral hazard. Fourth, fund utilization, leverage, and outreach depend on work flow. Finally, protracted procurement processes raise costs and undermine the effectiveness of a guarantee fund.

The significance of credit guarantee funds for investments financing of SME in Poland and Malopolska

Polish SMEs despite the fact that they are the driving force of the economy, face many barriers to their development. One of the most frequently mentioned barrier is a financial barrier. Entrepreneurs complain about the problems with obtaining bank loans, mainly due to lack of credit history and adequate security of the loan required by banks. Therefore, this paper analyzes the credit guarantee funds and attempts to answer the question whether the development of credit guarantee funds in Poland will contribute to reducing barriers to obtaining bank loans by Polish SMEs.

The significance of credit guarantee funds for investments financing of SME in Poland and Malopolska

The significance of credit guarantee funds for investments financing of SME in Poland and Malopolska

Valuation of credit guarantee funds in Poland

In the scope of the financial crisis and constraints in SMEs financing special attention is focused on the guarantee schemes and funds. The purpose of the article is to present the Polish guarantee funds valuation based on the funds’ activity data. The article highlights the guarantee schemes concept as a credit collateral and gives the broad overview of the Guarantee System in Poland, also the conceptual characteristics and good practices of the European guarantee systems.

The typology of partial credit guarantee funds around the world

This paper presents data on 76 partial credit guarantee schemes across 46 developed and developing countries. Based on theory, we discuss different organizational features of credit guarantee schemes and their variation across countries. We focus on the respective role of government and private sector and different pricing and risk reduction tools and how they are correlated across countries. We find that government has an important role to play in funding and management, but less so in risk assessment and recovery. There is a surprisingly low use of risk-based pricing and limited use of risk management mechanisms.

Credit guarantee schemes – a response from the National Guarantee System of Ecuador

In an earlier article 'Credit guarantee funds and mutual guarantee systems', in Volume 4 Number 2 of SED, Jacob Levitsky commented that for credit guarantee schemes in Latin America, '… in no way does the guarantee organization contribute to an improvement in the attitude or ability of the debtor as regards to the repayment of loans and the use of the finance being borrowed'.The author of the following article responds in this way:'The observations [by Jake Levitsky] were limited:○ to guarantee schemes financed by governments;○ to guarantee organizations which do not undertake any real independent credit appraisal analysis; and○ to centralized guarantee mechanisms.There are, in fact, a number of well-functioning guarantee schemes, among them the National Guarantee System of Ecuador (SNGC).' In the following article an attempt has been made to give a more complete picture of the success of guarantee schemes, by describing the functioning of the SNGC, its focus, source of funding, structures and procedures. The article compares SNGC with the criteria for success described by Levitsky; it points to the problems still facing SNGC and makes some suggestions about how they may be overcome.

Credit guarantee funds and mutual guarantee systems

The reluctance of banks to take on the high risks and administrative costs of lending to small businesses has been the reason for the establishment of credit guarantee funds and mutual guarantee systems. Credit guarantee funds are established usually with government financial support, to provide lending institutions with money to compensate for the losses sustained when borrowers default on loans. Mutual guarantee systems are more decentralized: they involve a group of people coming together to undertake a common guarantee for a loan application for one of their members.This article describes the range of guarantee schemes which have been in operation in France, Italy, elsewhere in Europe and Japan, and draws together some points fundamental to the success of such schemes. It then describes how similar schemes have been attempted in Kenya, the Philippines and elsewhere in the developing world.