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
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