Thorsten L. Beck, Leora F. Klapper, Juan Carlos MendozaThorsten L. Beck, Leora F. Klapper, Juan Carlos Mendoza
World Bank, Washington D.C.World Bank, Washington D.C.
The Typology of Partial CreditGuarantee Funds around the WorldThe Typology of Partial CreditGuarantee Funds around the World
The Typology of Partial CreditGuarantee Funds around the WorldThe Typology of Partial CreditGuarantee Funds around the World
I. SummaryI. Summary
I. SummaryI. Summary
This paper presents data from a survey of 76 partial creditguarantee schemes across 46 developed and developingcountries
We discuss different organizational features of creditguarantee schemes and risk management devices and theirvariation across countries
We focus on the respective role of government and privatesector and different pricing and risk reduction tools and howthey are correlated across countries
We find that government has an important role to play infunding and management, but less so in risk assessment andrecovery
Schemes with more government involvement are less likely touse risk-reducing devices and have higher loan default rates
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II. Survey DesignII. Survey Design
II. Survey DesignII. Survey Design
General questions on the characteristics of the fund:
- General characteristics
- Ownership
- Type
Detailed information on operational characteristics:
- Eligibility
- Pricing structures
- Risk management
“Output” measures of PCG activities:
- Number of loans guaranteed
- Average value of loans guaranteed
- Number of loan defaults
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III. Summary StatisticsIII. Summary Statistics
III. Summary StatisticsIII. Summary Statistics
Summary Statistics, Medians
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IV.1. Results - Corporate Structure of SchemesIV.1. Results - Corporate Structure of Schemes
IV.1. Results - Corporate Structure of SchemesIV.1. Results - Corporate Structure of Schemes
Mutual Guarantee Associations (or Societies): collectives ofindependent businesses and/or organizations that grant collectiveguarantees to loans issued to their members; may receive governmentfunding (i.e. Italy)
Publicly Operated National Schemes: government initiatives at thelocal, regional, or national level; generally established as part of a publicpolicy objective (e.g. promoting SMEs); although publicly funded, thesemight be managed by private groups (i.e. Korea)
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IV.2. Results - ResponsibilitiesIV.2. Results - Responsibilities
IV.2. Results - ResponsibilitiesIV.2. Results - Responsibilities
Governments have an important role in funding, but a much morelimited role in management, risk assessment and recovery
--Even funds with government management and credit riskassessment responsibilities are significantly more likely to useprivate parties to recover loan losses
The Private Sector shares in funding with governments, and isdominant in management, risk assessment and recovery
- Financial institutions generating the loans being guaranteed are mostly responsible for credit risk assessment and recovery of defaulting loans
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IV.3. Results – Risk Management IIV.3. Results – Risk Management I
IV.3. Results – Risk Management IIV.3. Results – Risk Management I
Firms that use a loanbasis are significantlymore likely to have aguarantee limit
Firms that use aportfolio approach aresignificantly more likely toreceive governmentfunding – and use theprivate sector for creditrisk assessment
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IV.3. Results – Risk Management IIIV.3. Results – Risk Management II
IV.3. Results – Risk Management IIIV.3. Results – Risk Management II
Risk-based pricing does notvary significantly with thelevel of economic andfinancial development
Schemes that are restrictedto SMEs are more likely tohave elements in place thatbase pricing and payouts onrisk
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IV.3. Results – Risk Management IIIIV.3. Results – Risk Management III
IV.3. Results – Risk Management IIIIV.3. Results – Risk Management III
Schemes where loan repayments lowerthe cost of future loans have significantlyhigher guarantee limits and later payouts
Schemes that payout at the time ofdefault are less likely to have no riskmanagement program, whereas thereverse is true for PCGs that payout later
It appears that banks that take on moreex-post risk and recovery costs, correctfor this by charging risk based fees
Schemes with government responsibilityfor credit risk and recovery aresignificantly older and more likely toguarantee loan portfolios, payout after thebank initiates recovery, and have no riskmanagement program
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IV.4. Results – Total Loans and Defaults RatesIV.4. Results – Total Loans and Defaults Rates
IV.4. Results – Total Loans and Defaults RatesIV.4. Results – Total Loans and Defaults Rates
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IV.5. Results – FindingsIV.5. Results – Findings
IV.5. Results – FindingsIV.5. Results – Findings
Default rates are higher in older schemes
There is no significant variation in default rates betweencountries at different levels of economic and financialdevelopment
Schemes that are more restrictive in their eligibility criteriado not suffer from higher loss rates
There is a strong correlation of default with thegovernment’s role in partial credit guarantee schemes
While government funding and management is notcorrelated with the default ratio, government involvement incredit risk assessment and recovery is associated with higherdefault
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V. ConclusionsV. Conclusions
V. ConclusionsV. Conclusions
We find an important role of government in the funding andmanagement of PCG funds, but less so in risk assessment andrecovery, roles that are mostly confined to the private sector
There is a variety of specialization among PCG funds
Similarly, pricing, risk assessment and risk managementstrategies differ across the different schemes
There is a surprising dearth of schemes that reduce riskthrough risk-adjusted and performance based pricing andpayout only after the lender starts legal action against adefaulting borrower
The role of government in risk assessment and recovery, asobserved in a few PCG funds, is associated with higher loandefault rates
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VI. Future WorkVI. Future Work
VI. Future WorkVI. Future Work
The effect of different characteristics of PCG schemes onbanks’ risk-taking decisions
The effect that credit guarantee schemes have on accessto credit, entrepreneurship and job creation
A proper cost-benefit analysis of PCG funds compared toother SME government interventions
This research require time-series, loan- and borrower-level data, preferably over changes in specificcharacteristics of guarantee schemes
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