Credit Guarantee Research Articles

Investments, credit guarantees, and government subsidies in a regime-switching framework

Abstract This paper examines how credit guarantees and government subsidies impact investment in a regime-switching model. We provide new explicit pricing formulas for a general standard asset. Almost all common corporate securities’ prices can be easily derived by the explicit formulas though project cash flows are driven by both a Brownian motion and a two-state Markov chain. We provide a method about how governments should specify a proper tax subsidy standard for a given tax rate to motivate a firm to invest in a project in the way they wish. If the tax subsidy is sufficiently high (low), an overinvestment (underinvestment) occurs. The higher the tax rate, the more significant the overinvestment (underinvestment). We pin down the subsidy amount required for motivating a firm to invest immediately and fix the optimal capital structure with government subsidies.

Globalization’s Influence on MSME’s & Their Role in Economic Development: A Comparative Analysis

This study critically examines the dual-edged impact of globalization on Micro, Small, & Medium Enterprises (MSMEs) & their consequential role in fostering economic development. Despite globalization offering unparalleled opportunities for market expansion, technological advancements, & cross-border partnerships, MSMEs face exacerbated issues, including intense competition from multinational corporations, regulatory complexities, & the volatility of global markets. This research underscores the critical importance of governmental support & intervention in ensuring the survival & growth of MSMEs in this globalized landscape. Through a comparative analysis, the study highlights various schemes such as the Credit Guarantee Fund Scheme for Micro & Small Enterprises, the Micro Units Development & Refinance Agency (MUDRA) loans, & the recent focus on digital empowerment initiatives that aim to enhance competitiveness & operational efficiency among MSMEs. This paper argues that while globalization presents significant issues for MSMEs, strategic government policies & support schemes are vital in leveraging the benefits of globalization, ultimately contributing to sustainable economic development. The findings aim to inform policymakers & stakeholders about the nuanced role of MSMEs in the global economy, advocating for a balanced approach that nurtures growth while mitigating risks associated with globalization.

Optimal decisions in a capital-constrained supply chain under credit guarantee and revenue-sharing contracts

This study proposes a novel Supply Chain Finance scheme (CG-RS), integrating credit guarantees (CG), and revenue-sharing contracts (RS). We analyze a three-party Stackelberg game between a capital-constrained retailer, supplier, and bank. We derived equilibrium strategies under both monopolistic and competitive bank markets to investigate the impact of the CG-RS scheme on the financial performance of each party. From the numerical analysis, we find that all parties can benefit from the CG-RS scheme by mitigating default risk and aligning incentives. The supplier's guarantee coefficient and the retailer's initial capital significantly influence the scheme's outcomes, while the revenue-sharing proportion plays a crucial role in balancing interests. Our findings suggest that the CG-RS scheme offers a promising solution for addressing capital constraints and enhancing supply chain performance.

Reconstructing gearing ratios and digital-based service rates to mitigate financial risks for sustainable development in Indonesia’s credit guarantee industry

This research examines the role of the credit guarantee industry in supporting the growth of MSMEs in Indonesia through guarantee programs that aim to reduce information asymmetry between banks and MSMEs. Using structured interview methods and data triangulation techniques from various sources, this study analyzes the management of gearing ratio and tariff risks that significantly impact the financial stability of guarantee industry. The analysis results with NVIVO 12 and the Analytical Hierarchy Process (AHP) reveal digital transformation’s importance in efficiency and transparency in risk management. This research also produces a digitalization design for the Program Gearing Ratio (PGR) and offers practical solutions through SWOT analysis to improve the guarantee capacity and sustainability of the industry. The findings contribute to the literature by proposing an integrated internal audit approach for financial risk mitigation in the credit guarantee industry.

Fundamental Commitment and Agreement in Bank Credits: Evidence from Indonesia

Legal protection theory is economically and juridically given to weak communities. To protect human rights, the state wants a harmonious relationship between the government and the people based on a proportional functional relationship between state powers where dispute resolution is carried out through deliberation. The paper is aimed at discussing commitments and agreements among banks and bank creditors. The present study employed a descriptive qualitative method. The results show that objects are classified as movable and immovable in which five distinctions can be seen. The first is related to collateral charges including a distinction between movable and immovable objects, between movable and immovable objects that determine the form or type of encumbrance in the form of fiduciary or pledge and collateral in the form of immovable objects, of binding or encumbrance, and of Mortgage Rights. The second refers to leveraging, namely the distinction between movable and immovable objects resulting in differences in the delivery of the object. The third is oriented to movable objects, in which delivery is carried out by handing over the object, whereas for immovable objects the handover is done in exchange of name, for example. The fourth considers the terms of expiry for immovable objects with no expiration, while for movable objects there is an expiration. Finally, it regards the bezit for movable objects in which a bezitter of movable property is the owner of the object, whereas for immovable objects he is not the owner. Keywords: Credit guarantee, law, agreement, special guarantee, debt guarantee

Economic Diverification in Nigeria: Agriculture in Perspective

This study examines economic diversification: agricultural in perceptive. In particular the study examines the impact of investment in agricultural sector in achieving economic diversification between periods spanning from the years 2000 to year 2022. Time series secondary data were sourced from Central Bank Statistical Bulletin (2022) and World Bank Development Indicators (2024). Autoregressive Distributed Lag Regression Estimate (ARDL) analysis was conducted with the aid of E-view 10. Findings of this study reveals that agriculture credit guarantee scheme fund for cash crops and livestock have negative and significant impact on economic diversification. More so, agriculture credit guarantee scheme fund for food crops equally has negative and insignificant impact on economic diversification. However, grand total of agriculture credit guarantee scheme fund on agricultural commodities has positive and insignificant impact on economic diversification. Based on study findings, the following recommendations are suggested; that governments at all levels should as a matter of urgency should sustain funding of agriculture sectors and provide necessary infrastructure in the rural areas where majorities of agricultural activities take place in order to diversify her economy. More so, stakeholders in the agricultural sectors mainly the farmers should take advantage of loanable fund available to them and channelled it to appropriate crops that will yield investment return. In addition, it is also recommended that monetary policy authority should look inward to determine why agricultural credit guarantee scheme fund has negative significant impact on all the three categories of agricultural commodities identified. This can be achieved through close monitoring and adequate supervision of the loan disburse to the direct beneficiaries. Lastly, investment in human capacity in agricultural sector is away forward for economic diversification.

Did Biden-Harris’s reforms on the Paycheck Protection Program reduce racial disparities in lending?

AbstractIntroduced under the Trump-Pence Administration, the Paycheck Protection Program (PPP) provided short-term relief loans to small American businesses during the peak of the Coronavirus pandemic. The initial design of the PPP faced significant criticism from researchers due to racial disparities, among other issues, in its lending process. Minority groups received smaller PPP loan amounts during the original two tranches released in 2020. To increase equitable access for all, in February 2021 the Biden-Harris Administration enforced swift changes to the initial PPP aimed at favouring access to PPP loans for minority-owned small businesses that had been disadvantaged by the program’s original design under the Trump-Pence Administration. By exploiting a granular dataset of 1,759,270 PPP loans granted between Q2 2020 and Q2 2021 and by implementing a difference-in-differences approach (DID), this paper provides novel evidence on the effectiveness of the Biden reforms in reducing racial disparities within the Paycheck Protection Program. Indeed, we observe a significant increase in the volume of PPP loans granted to minority-owned businesses in the period following the Biden-Harris Administration’s reforms. Furthermore, among different minority groups, the reforms appear most effective for Native American minority groups (including American Indians, Alaska Natives, Native Hawaiians and/or Other Pacific Islanders), followed by Black Americans and Asian business owners. Our findings offer novel contributions to the existing literature on institutional discrimination, particularly regarding the initial PPP design. Our findings are especially valuable for policy makers as they underscore the importance of radical changes in addressing racial disparities. Our paper also offers evidence of how a public credit guarantee program should be designed to empower and promote economic inclusion for all, regardless of ethnicity, aligning with the UN’s Sustainable Development Goals.

Agricultural Financing and Agricultural Output in Nigeria: An ARDL Approach

This study analyzes the impact of agricultural financing on agricultural output in Nigeria from 1991 to 2022. Employing an Autoregressive Distributed Lag (ARDL) model, the research examines the effects of government capital expenditure, commercial bank credit schemes, and the agricultural credit guarantee scheme (ACGS) on agricultural output. The findings indicate that both government capital expenditure and ACGS positively and significantly influence agricultural output in both the short and long run. Commercial bank credit schemes also have a positive and significant impact, although some studies report this effect as positive but not statistically significant. The study highlights the crucial role of financial support in boosting agricultural productivity and offers policy recommendations to improve agricultural financing mechanisms. These include increasing government investment, enhancing credit schemes, and strengthening the ACGS to ensure sustainable agricultural growth and economic development in Nigeria.

Examining Barriers to SME’s Access to finance: A Qualitative Review of Credit Guarantees in Malawi

The study examines the implementation of credit guarantees and how their barriers affect small and medium enterprises' (SMEs) access to finance in Malawi. The study reviews widely existing literature from academic research, policy frameworks, and reports from governmental and nongovernmental bodies. Additionally, the study uses primary data collection methods, in which interview and survey techniques are applied to cover the whole spectrum of stakeholders: SME owners, financial institutions, government functionaries, and development partners. This study uses a qualitative approach to examining how credit guarantees affect small businesses' ability to access capital and how well they do after it. Qualitative techniques include thematic coding of interview transcripts and policy documents, and quantitative techniques include using statistical tools. In so doing, the paper brings to light credit guarantees, which are essential in broadening the financial horizons of SMEs in Malawi. Major barriers to accessing finance include a lack of collateral, poor credit history, and exorbitant interest rates which become stumbling blocks for SMEs to secure loans from mainstream financial institutions. It further identifies the critical role of government policies and programs in supporting SMEs' financial inclusivity and offers measures to enhance credit guarantee mechanisms' effectiveness.

Credit allocation and public credit guarantee schemes for small businesses: evidence from Japan

ABSTRACT We investigate the relationship between the use of a public credit guarantee scheme for small businesses and the efficiency of credit allocation using region- and industry-level data from Japan for the period from 1968 to 2005. Because credit constraints are more severe for small businesses than for large firms, a public credit guarantee scheme that mitigates this constraint on small firms’ growth could enhance social welfare. If credit-guaranteed loans are allocated to firms with high value added, a public credit guarantee scheme would enhance the efficiency of credit allocation. Conversely, however, public credit guarantee schemes can squeeze credit allocations for small businesses. When financial institutions offer loans through credit guarantee schemes, the incentives of the financial institutions to monitor the activity of small business borrowers may decline. In addition, because Japan’s public credit guarantee scheme is a component of a broader set of social policies aiming to eliminate inequality, credit-guaranteed loans can be offered to economically distressed firms. In this situation, we identify a negative relationship between the amount of credit guaranteed and value added. We show that Japan’s public credit guarantee schemes reduced the efficiency of credit allocations, with negative implications for industry and regional growth.

Quantitative Analysis of Agricultural Programmes’ Effectiveness in Reducing Unemployment Rate in Nigeria

Unemployment remains a pressing issue in Nigeria, with a significant portion of its population unable to secure sustainable employment opportunities. In recent years, agricultural programmes have emerged as potential solutions to address the challenges of unemployment. This study explores the effectiveness of agricultural programmes in reducing unemployment rate in Nigeria. The agricultural sector in Nigeria holds immense potential for job creation, considering the country’s vast arable land, favourable climate, and agricultural resources. However, the sector has been underutilized and faced numerous challenges, leading to high unemployment rates. Agricultural programmes have garnered attention as they aim to revitalize the sector, promote sustainable farming practices, and create employment opportunities for the burgeoning youth population. Consequently, the paper examines the impact of key agricultural programmes such as the Commercial Agriculture Credit Scheme (CACS), Agricultural Credit Guarantee Scheme (ACGS), Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), and FADAMA, introduced by successive Nigerian governments at various times in reducing the unemployment rate in the country. Some of these programme though new, are just a transmutation from older ones, with the operations remaining the same. These programmes have demonstrated positive impacts in several ways according to statistics; contributing to the diversification of the economy of Nigeria and reducing the country’s heavy reliance on oil revenue. The question is, how effective have these programmes been in reducing the unemployment rate? Therefore, the paper’s main objective was to analyse how successful these programmes have been in checking the problem. The study uses the Logit model to investigate the effectiveness of these key Agricultural programmes in curbing the unemployment rate in the country. Data from the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS) were used in the analysis. The results reveal that, of the four prominent programmes introduced by the government based on participants employed, the Commercial Agriculture Credit Scheme (CACS) had the likelihood or greater probability at reducing the unemployment rate in the country. The study, consequently, concludes that, subsequent programmes should be designed according to the operations and modus operandi of CACS and that other programmes should either be upgraded to CACS module or be scrapped since their impact on reducing unemployment is not felt.

Assessing the Challenges affecting SMEs' access to Bank Loans in Zambia, a case of Lusaka Town Centre

This research aimed to evaluate the difficulties SMEs face in obtaining credit from banking institutions. Using a descriptive research design, primary data was collected from various SME respondents through a structured, self-administered questionnaire. The literature review, sourced from journals and other materials, provided a deeper understanding of the subject. Data analysis was conducted using frequency tables and descriptive graphics with the assistance of SPSS for data entry, coding, and analysis of quantitative data from closed-ended questions. The findings revealed that while access to credit positively influenced SME performance by enabling proprietors to increase business stocks or acquire assets, significant challenges impeded access to credit. These challenges included inadequate collateral, limited borrowing capacity, high interest rates and processing fees, and stringent terms and procedures. These barriers hindered SMEs' ability to expand, improve cash flow for reinvestment, and ultimately reduced profitability. To address these issues, the researcher recommended that the government, through the Bank of Zambia, consider capping interest rates for SMEs or providing subsidized loans. Additionally, they suggested strengthening the Zambia Credit Guarantee Scheme Limited to offer loan guarantees for SMEs, recognizing their crucial role in the economy. The study recommended that Government create interest Rate Caps where the government should work with the Bank of Zambia to establish an interest rate ceiling for SMEs, making loans more affordable and promoting business growth and stability. Develop subsidized loan programs for SMEs to lessen the impact of high interest rates and processing fees, thereby helping them secure the capital needed for expansion and operational improvements. Enhancing the Credit Guarantee Scheme requires you to improve the structure and operations of the Zambia Credit Guarantee Scheme Limited to provide SMEs with easier access to loan guarantees, addressing issues related to inadequate collateral and limited borrowing capacity.

Assessing the Challenges Affecting SMEs' Access to Bank Loans in Zambia, a Case of Lusaka Town Centre

This research aimed to evaluate the difficulties SMEs face in obtaining credit from banking institutions. Using a descriptive research design, primary data was collected from various SME respondents through a structured, self-administered questionnaire. The literature review, sourced from journals and other materials, provided a deeper understanding of the subject. Data analysis was conducted using frequency tables and descriptive graphics with the assistance of SPSS for data entry, coding, and analysis of quantitative data from closed-ended questions. The findings revealed that while access to credit positively influenced SME performance by enabling proprietors to increase business stocks or acquire assets, significant challenges impeded access to credit. These challenges included inadequate collateral, limited borrowing capacity, high interest rates and processing fees, and stringent terms and procedures. These barriers hindered SMEs' ability to expand, improve cash flow for reinvestment, and ultimately reduced profitability. To address these issues, the researcher recommended that the government, through the Bank of Zambia, consider capping interest rates for SMEs or providing subsidized loans. Additionally, they suggested strengthening the Zambia Credit Guarantee Scheme Limited to offer loan guarantees for SMEs, recognizing their crucial role in the economy. The study recommended that Government create interest Rate Caps where the government should work with the Bank of Zambia to establish an interest rate ceiling for SMEs, making loans more affordable and promoting business growth and stability. Develop subsidized loan programs for SMEs to lessen the impact of high interest rates and processing fees, thereby helping them secure the capital needed for expansion and operational improvements. Enhancing the Credit Guarantee Scheme requires you to improve the structure and operations of the Zambia Credit Guarantee Scheme Limited to provide SMEs with easier access to loan guarantees, addressing issues related to inadequate collateral and limited borrowing capacity.

Financing and operational strategies for supply chains with yield uncertainty and capital constraints

Facing yield uncertainty is a common phenomenon that corporations encounter in their production and operations processes, especially small and medium-sized enterprises (SMEs). It is a challenge for SMEs that also have capital constraints, and thus financing from supply chain members or commercial banks is the normal way to improve the efficiency of supply chain operations. We consider a supply chain finance system consisting of an SME, a core enterprise (CE), and a bank, in which the SME is capital-constrained and faces productivity yield uncertainty. Therefore, the SME may use two financing sources to support his production: financing or advance payment from the CE. In the presence of bankruptcy risks for the SME, we model their strategic interaction as a Stackelberg game with the CE as the leader. We design the framework for the order penalty contract and derive the optimal strategies that include the planned production quantity decision of the SME and the pricing decisions of the CE under the two financing sources. We find that from the SME’s perspective, he will always prefer advance payments from the CE to bank financing. Furthermore, we propose a framework for partial credit guarantees. When it is difficult for banks to evaluate the credit history of SMEs, CEs provide guarantees to banks for financing SMEs. The analytical methods and numerical results provide decision-making methods and suggestions for production planning of the SME and wholesale prices formulated by CE.

Revisiting SME Financing in Bangladesh

Small and Medium Enterprise (SME) Financing is a topic of significant research interest to academics and an issue of great importance to the policy makers around the world. Economic, as well as technical and social arguments warrant the promotion of SMEs, as they create large scale, low-cost employment opportunities, use locally available inputs and technologies, mobilize small and scattered private savings, develop entrepreneurship, and correct the regional imbalance in development that exists in developing countries. Despite all these potentials, SMEs are disappearing, abandoning the potential role they could have played in economic development. Several studies have identified the major obstacles that include, but not limited to, financing, infrastructure facilities, taxes and regulations and stability in policies. This paper focuses on the financial constraints in Bangladesh. In Bangladesh, among the formal sources, commercial banks are not interested because of the high risk and high supervision cost associated with this type of financing. Absence of sound collateral puts SMEs at a relative disadvantage. However, we have found that some of the commercial banks have some ‘innovative’ products or services targeting at SMEs only, while others have ‘repackaged’ some of their existing products as SME products. The contribution of commercial banks is meager except BASIC Bank Ltd. and BRAC Bank Ltd. It has been observed in the study that commercial banks disburse loans to this sector only when government introduces ‘credit guarantee scheme’ in different capacity. ‘Relationship lending technologies’ should be introduced in case of the existing ‘transaction lending technologies

Optimal strategies for supply chain with credit guarantee using CVaR

In this paper, we explore optimal strategies of a supply chain consisting of one manufacturer, one capital-constrained retailer and one bank, where the bank provides loans to the retailer due to credit guarantees. However, there are default risks if the retailer can not repay the loans. Using conditional value-at-risk (CVaR) to describe risk aversion of the retailer, optimal order quantities of the retailer and optimal wholesale prices of the manufacturer are obtained by solving a Stackelberg game model, where the manufacturer is a leader and the retailer is a follower, respectively. Our numerical results show that the default probability of the retailer are proportional to optimal wholesale prices of the manufacturer. It implies that when the default probability of the retailer is high, the manufacturer should reduce the default risk by setting higher wholesale prices to avoid a burden of a substantial guarantee. Thus, our results can serve as insights for decision-makers of supply chain management.

THE OIL PALM (Elaeis guineensis) ENTERPRISE FINANCING UNDER AGRICULTURAL CREDIT GUARANTEE SCHEME IN NIGERIA

The limited engagement of financial institutions in providing loans and advances to oil palm enterprises under the Agricultural Credit Guarantee Scheme (ACGS) has impeded the sustainable development of these enterprises. This study examined the trends in ACGS loan guarantees, repayments, and outreach to oil palm beneficiaries in Nigeria from 1981 to 2022. The analysis utilized time series data sourced from the Central Bank of Nigeria's statistical bulletin. Both exponential and quadratic trend equations were estimated using the Ordinary Least Squares (OLS) method. The findings indicated a positive exponential growth rate for the value of guaranteed loans (25.05%), repaid loans (15.20%), and the number of beneficiaries (7.37%) over the specified period. The quadratic trend equations suggested stagnation in growth rates over time for both guaranteed loans and repayments by beneficiaries. Furthermore, the quadratic analysis indicated a significant deceleration in growth over a double time period, suggesting that the growth occurred at a diminishing rate. It is recommended that the volume of ACGS loans allocated to the oil palm sector be increased in accordance with the prevailing inflation rate, and that the selection of beneficiaries be refined to ensure that only genuine applicants are identified.

A study on factors influencing lending decisions for MSMEs by scheduled commercial banks in the CGTSME scheme

This study investigates the dynamics of the credit guarantee and technology support for micro, small, and medium enterprises (CGTSME) scheme in India, focusing on how bankers perceive the scheme and how these perceptions influence their lending decisions for MSMEs. Data were collected from public and private sector banks in four major Indian cities over three months using a questionnaire-based survey strategy. Analysis was conducted using partial least squares structural equation modeling (PLS-SEM). The findings indicate that the 5Cs (character, capacity, capital, collateral, and conditions) significantly impact bankers’ perceptions of the CGTSME scheme. However, factors such as the creditability of borrowers, availability of financial statements, firm capital size, and guarantee fee payment do not have a significant influence. Interestingly, the margin requirement was found to be a significant factor in shaping bankers’ perceptions. Additionally, the study reveals that bankers’ perception of the CGTSME scheme significantly affects their lending decisions for MSMEs. These results have important implications for policymakers and banks looking to enhance the effectiveness of the CGTSME scheme and improve access to finance for MSMEs. By understanding the factors that influence bankers’ perceptions, policymakers and banks can design more targeted interventions to support MSMEs. Future research could further explore these factors and their impact on bankers’ perception and lending decisions, contributing to a deeper understanding of how to support the growth and development of MSMEs.

Application of Constitutional Court Decision No.18/PUU-XVII/2019 concerning Fiduciary to the protection of Consumer Rights

This article is to find out how to apply Constitutional Court Decision No.18/PUU-XVII/2019 concerning Fiduciary to the protection of Consumer Rights. Collateral comes from the Dutch words zekerheid and cautie which means the debtor's ability to repay the creditor. This is achieved when the debtor receives a loan or debt from a creditor and uses valuables as collateral to secure the loan or obligation. As stated in the Decree of the Directors of Bank Indonesia No. 23/69/KEP/DIR dated 28 February 1991 concerning Credit Guarantee, the word "guarantee" in Indonesian can mean guarantee. This article uses the Normative Juridical method relating to issues relating to the Mortgage and Lien Rights Law and the Final Decision of the Constitutional Court. In collecting information for this research, we looked at various sources, including primary, secondary and tertiary legal materials, related laws and regulations, as well as documents that use a normative juridical approach to examine Constitutional Court and Constitutional Court decisions. Mortgage and Lien Law.

IMPACT OF THE COVID-19 PANDEMIC ON BANK LENDING: AN ANALYSIS OF RISK PERCEPTION AMONG BANK MANAGERS IN INDIA

With the onset of Covid 19 pandemic, the world experienced unprecedented disruptions in all aspects of life. It not only affected physical health but also affected economies of the world. In addition to impacts on physical health, it has also caused dramatic changes in the financial markets and institutions. A healthy banking system is crucial for the liquidity of the economy and the smooth flow of credit in the system. Amidst all this, the major interest of the policymakers lies in the alteration of the lending practices of the banks when faced with increased uncertainty and risk. This paper aims to present new evidence regarding the lending decisions made by the banks during Covid pandemic across multiple countries. It is a unique opportunity to study these effects in different countries of the globe. In response to the pandemic, the Central banks introduced monetary stimulus measures to address the concerns of the business with regards to solvency and liquidity. Also, many countries launched extraordinary credit guarantee programs to support businesses during this challenging time. These loan guarantees, sometimes paired with government purchases of corporate bonds, have been essential tools for infusing liquidity to the struggling businesses. This paper calculates the shock of Covid 19 on bank lending in India and how risk perceptions of bank managers changed during this challenging period.