Report
Credit Guarantee Systems For Agriculture And Rural Enterprise Development
Guarantee funds have been used over the years in many countries, forms and contexts as a way to increase the flow of funds into targeted sectors and groups. Various types of guarantee systems and scheme are used to make lending more attractive by sharing or absorbing the risks associated with lending to the targeted sector or type of enterprise. Such systems can also increase the amount of loan funds available to an enterprise beyond its own collateral limits, because the guarantee is a form of loan collateral. The guarantee manager can assume the additional role of loan assessor and monitor, which can improve the quality of the loans made. However, guarantee funds have a cost, which is paid through the fees charged and/or subsidized by the government or a donor. Questions arise regarding the cost versus the benefits when a subsidy is needed. What is the value added of guarantee funds in reducing interest rates or the risks to lending, and how much do the funds influence lenders decision-making regarding whether or not to lend? Guarantee funds have more frequently been used for small enterprise loans in diverse sectors, but they are now quite common in agriculture and agribusiness. There is renewed interest in using them to increase investment into the sector and to ensure that investment is directed towards target groups and agro-industries that are deemed too risky for adequate financing without such risk-sharing incentives. This document takes a fresh and unbiased look at the application and results of guarantee funds for agricultural and rural enterprise development. Through analysis of guarantee funds that have been operational for a long time, the document aims to inform development agencies and policy-makers on current practices and experiences, so that they can apply this information to their decision-making regarding whether or not and/or how best to promote guarantee mechanisms that are effective and sustainable. This document builds upon four major case studies of guarantee funds and 12 other analyses of such funds.