Public credit guarantee schemes have gained popularity as a tool to try to increase access to credit for firms perceived to be financially constrained, typically small and medium-sized enterprises. This paper discusses the potential relevance of these schemes by providing a brief overview of their use around the world and reviewing some important design features. The paper also presents a brief conceptual discussion of the role of public credit guarantees in increasing access to credit and the rationale for government intervention. Public credit guarantee schemes can constitute useful mechanisms for increasing access to finance for certain groups of borrowers, but their success and financial sustainability hinge on proper design. Moreover, rigorous evidence on the impact of these schemes is still scarce. More in-depth evaluations that jointly take into account financial sustainability and (financial and economic) additionality are needed, as well as an assessment of credit guarantees against alternative policy instruments.
Sergio Schmukler is Lead Economist at the World Bank’s Development Research Group. His research area is international finance and international financial markets and institutions. He obtained his Ph.D. in Economics from the University of California at Berkeley in 1997, when he joined the World Bank’s Young Economist and Young Professionals Programs. He currently teaches financial development at Columbia University. He is a member of the Money and Finance Research (Mo.Fi.R) group and Treasurer of LACEA, the Latin America and Caribbean Economic Association (since 2004).
In recent years, he has visited the Bank for International Settlements (BIS), the Central Bank of Chile, CREI at Universitat Pompeu Fabra, the Dutch Central Bank, and the Hong Kong Institute for Monetary Research of the Hong Kong Monetary Authority. He has taught at the Department of Economics of University of Maryland (1999-2003), worked at the International Monetary Fund Research Department (2004-2005), was Associate Editor of the Journal of Development Economics (2001-2004), and has participated in several other editorial boards. In earlier years, he worked at the Argentine Central Bank, the U.S. Board of Governors of the Federal Reserve System, and the Inter-American Development Bank Research Department.