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    Optimal Credit Guarantee Ratio for Asia

    Yoshino, Naoyuki; Taghizadeh-Hesary, Farhad | July 2016
    Abstract
    Difficulty in accessing finance is one of the critical factors constraining the development of small and medium-sized enterprises (SMEs) in Asia. Owing to their significance to national economies, it is important to find ways to provide SMEs with stable finance. One efficient way to promote SME financing is through credit guarantee schemes, where the government guarantees a portion (ratio) of a loan provided by a bank to an SME. This research provides a theoretical model and an empirical analysis of factors that determine optimal credit guarantee ratio. The ratio should be able to fulfill the government's goal of minimizing the bank's nonperforming loans to SMEs, and at the same time fulfill the government policies for supporting SMEs. Our results show that three categories of factors can determine the optimal credit guarantee ratio: (i) government policy, (ii) macroeconomic conditions, and (iii) banking behavior. It is crucial for governments to set the optimal credit guarantee ratio based on macroeconomic conditions and vary it for each bank or each group of banks based on their soundness, in order to avoid moral hazard and ensure the stability of lending to SMEs.
    Citation
    Yoshino, Naoyuki; Taghizadeh-Hesary, Farhad. 2016. Optimal Credit Guarantee Ratio for Asia. © Asian Development Bank Institute. http://hdl.handle.net/11540/6623.
    Keywords
    ADB
    Project finance
    Development plans
    Strategic planning
    Business Financing
    Investment Requirements
    Insurance Companies
    Development
    Finance
    Development Challenges
    Development Issues
    Development Problems
    Microenterprises Finance
    Commercial Finance Companies
    Enterprise Financing
    Insurers
    Insurance stocks
    Insurance holding companies
    Insurance carriers
    Insurance agencies
    Business subsidies
    Investment companies
    Foreign investment
    Investment companies
    International banks and banking
    Stock exchanges
    Grants
    Loans
    Show allCollapse
    Citable URI
    http://hdl.handle.net/11540/6623
    Metadata
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    adbi-wp586.pdf (1.207Mb)
    Author
    Yoshino, Naoyuki
    Taghizadeh-Hesary, Farhad
    Theme
    Development
    Finance
     
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise