Credit guarantee funds and mutual guarantee systems
The reluctance of banks to take on the high risks and administrative costs of lending to small businesses has been the reason for the establishment of credit guarantee funds and mutual guarantee systems. Credit guarantee funds are established usually with government financial support,to provide lending institutions with money to compensate for the losses sustained when borrowers default on loans. Mutual guarantee systems are more decentralized: they involve a group of people coming together to undertake a common guarantee for a loan application for one of their members.This
article describes the range of guarantee schemes which have been in operation in France, Italy, elsewhere in Europe and Japan, and draws together some points fundamental to the success of such schemes. It then describes how similar schemes have been attempted in Kenya, the Philippines and
elsewhere in the developing world.
to provide lending institutions with money to compensate for the losses sustained when borrowers default on loans. Mutual guarantee systems are more decentralized: they involve a group of people coming together to undertake a common guarantee for a loan application for one of their members.This
article describes the range of guarantee schemes which have been in operation in France, Italy, elsewhere in Europe and Japan, and draws together some points fundamental to the success of such schemes. It then describes how similar schemes have been attempted in Kenya, the Philippines and
elsewhere in the developing world.
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