5. Session 3 Lucia OECD PPT

7/28/2019 5. Session 3 Lucia OECD PPT

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ADB-OECD Workshop on Enhancing

Financial Accessibility for SMEs

2013/3/6 Session 3

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The Role of Credit Guarantee Systems and

Mutual Guarantee Societies

in Supporting Finance to SMEs

ADB - OECD Workshop on Enhancing FinancialAccessibility for SMEs

Manila, 6 7 March 2013

Lucia CusmanoSenior EconomistOECD Centre for SMEs, Entrepreneurship & Local Development (CFE)

Overview

1. Rationale and diffusion of Credit Guarantee Schemes

2. Typologies and operational characteristics

3. Evaluation of CGS

4. Key challenges and policy considerations


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OECD Working Party on

SMEs and Entrepreneurship (WPSMEE)

Mission

To help OECD and non-OECD economies develop policiesthat:

Foster entrepreneurship

Facilitate sustainable growth, competitiveness, and skilledjobs creation, and

Help their SMEs to meet the challenge of globalisation.

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The WPSMEEs areas of work

Finance

Globalisation

Innovation

Country Reviews


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CGS: rationale and diffusion

Long established credit risk transfer mechanism to easeaccess to credit finance for firms limited by

- information asymmetry

- little credit history

- under collateralisation

Highly heterogeneous

Largely diffused and unprecedented growth over the last years

instrument of choice during the crisis in many OECD countries increasingly adopted in non-OECD countries to expand credit markets

and improve financial inclusion

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CGS worldwide

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1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

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Volume of outstanding guarantees (%GDP), 2011

Source: AECM (2012), Pombo (2010)


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Expansion in OECD countries

in the aftermath of the financial crisis

Guarantees granted per year in selected European CGSs:value (EUR) and yearly growth rate (%, right scale), 2000-2011

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-20%-10%

0%

10%

20%

30%

40%

50%

60%

05,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Volumes of Guarantees y-o-y growth rate (RHS)

Source: AECM* Preliminary data for 2011

largely through public support

8Source: OECD Scoreboard on SME and Entrepreneurship financing (forthcoming)

2007 2008 2009 2010 2011

Guarantees

Chile 100 94 261 442 490

Czech Republic 100 119 195 300 67

Finland 100 105 114 107 119

Hungary 100 114 133 122 111

Netherlands 100 98 90 231 254

Spain 100 139 198 182 216

Turkey 100 538 1066 1772 2119

Guaranteed loans

Canada 100 108 100 108 108

France 100 117 193 186 151

Italy 100 100 213 396 365

Korea 100 108 142 141 140

United Kingdom 100 86 na 284 175

Government Guarantees (Value, 2007=100)


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Credit guarantees as countercyclical instruments

Official loan guarantees and direct official loans mostwidely used policy measures to increase access to finance inthe aftermath of the crisis

o New or expanded programmes

- special guarantees for start-ups, export firms

- equity guarantees

o Change in nature:

Before the crisis mainly concentrated on long terminvestment credits

Following liquidity shortages, increasing support toworking capital needs

Less stringent criteria for accessing guarantees

14.43%

13.53%

11.39%

13.40%

10.84%

8.00%

10.00%

12.00%

14.00%

16.00%

2007 2008 2009 2010 2011

Note: Sample of 17 Credit Guarantee Schemes in Europe.

Source: AECM

Share of rejected guarantee requests, 2007-2011


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Increasing adoption in emerging economies,

as credit markets expand

0

10

20

30

40

50

60

70

80

90

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Reserve Bank of India and

Indias Ministry of Micro, Small and Medium Enterprises

India: Credit Guarantee Fund Scheme for Micro and Small EnterprisesCredit Volume (100,000 Indian Rupees) and participating banks

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Public Guarantee Schemes

Variety of management models and delivery mechanisms

Operated by public agencies ( Canada, Chile, Estonia, France,Japan, Russia, USand in most cases in developing countries)

Decentralised or partnership model: public oversight butdelivery entirely delegated to lenders (the Netherlands, UK)

Private legal entities owned by the public (Romania, Colombia)

Public-private schemes with majority public stake (Hungary,Turkey)

Often not directly engaged in risk assessment and lendingdecision

Complementary services (business advice, export support)and specific targets (e.g. innovative firms)

Supervision by central government or Central Bank

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Mutual Guarantee Societies

Direct participation of the private sector

Direct Mutuality : SMEs as shareholders, managers and borrowers

Indirect Mutuality: created and managed bybusiness association,chambers of commerce, financial institutions

SMEs, territorial and sectoral focuso Strong ties with the local communityo In-depth knowledge of sectors, markets, local businesses

high social capital, mature local institutions

Retail approacho

Direct engagement in credit risk assessment and lending decisions ona case-by case basis high quality and high cost

Role of governmento Direct funding and/or counter-guaranteeso Regulation and tax reductions

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Demand for evaluation

oAccountability

o Policy assessment and learning

(at a time of stringent public budget constraints)

Quantitative and qualitative analyses leading to policyrecommendations

Identification and diffusion of best practices

Platform for dialogue between policy makers, financialinstitutions, the business community, internationalorganisations and NGOs.


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Evaluation dimensions

Financial SustainabilityAbility to generate autonomously theresources required for operating

Financial AdditionalityIncrease in the flow of funds towards viableSMEs that are credit-constrained

Economic AdditionalityEffect of increased access to finance bybeneficiary SMEs on overall economicwelfare

Financial Sustainability: key variables

Costs Financial returns

Costs of funds Guarantee fees

Operational costs Administrative fees

Losses on guarantees Return on finacial investments

Main determinantsscheme design credit risk management

firm eligibility coverage ratioretail vs portfolio guarantee termportfolio composition pricingclaim handling

quality of management and organisation efficiency

default rates and loan losses


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Evidence on Financial Sustainability

Scarce evidence: lack of accurate and timely dataNeed for transparent accounting practices in PGSs

Element ofpublic support in private or mixed schemes essential role ofpublic counter-guarantee systemfor mutual and public-private schemes

to be assessed againts :

-financial and economic additionality of the scheme

- net costs of alternative policies to achieve similarobjectives

Sustainability of anti-crisis measures:

the higher risk exposure for Credit Guarantee Schemes

Source: AECM

* sample of 15 guarantee schemes in Europe

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2006 2007 2008 2009 2010 2011

Payout to lenders/ volume of outstanding guarantees


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Leverage ratio : outstanding guarantees/guarantee fund(how much credit generated by given amount of capital)

Koreas KODIT (2006 - 2011)

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Evaluation: Financial Additionality (1)

Scheme-level

3,720 3,607 3,721

6,376 6,508 6,627

29,634 28,917

31,743

46,913 47,33345,487

8.0 8.08.5

7.4 7.36.9

0

2

4

6

8

10

12

14

16

18

20

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2006 2007 2008 2009 2010 2011

Capital of the Fund Outstanding Guarantees LR

Source: KODIT

Leverage ratio for selected European CGSs, 2009

0

5

10

15

20

25

30

35

Source: AECM

20

Evaluation: Financial Additionality (2)


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Evidence on Financial and Economic Additionality

Positive evidence on financial additionality:- Increase credit volumes- Improve conditions (interest rates, loan terms)

MGS in particular:o High degree of selectivity and tailored serviceo Signalling effect

Little studies on economic additionality:- Modelling approaches- Positive evidence on survival, growth and employment

Critical issue: design of the scheme and selection mechanismsborrowers self-selection (creditworthy) lenders shifting ordinary credits under the scheme

Policy role and financial sustainability

o Charged with anti-crisis functionso Expansion of public counter-guarantees

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o Evolution supervised financial intermediarieso Increase of administrative costs and expertise

What balance policy objectives financial sustainability?

What model for sustainability beyond the crisis?

What operational scale and

management model for effectiveness and sustainability?

Key challenges to MGSs

Increased default rates and dependence on public support

New regulatory framework (Basel III)


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Emerging trends

o Consolidation and increase in scale:trade-off scale (efficiency) vs. relationship (informed credit-riskassessment)

o Rationalisation and guarantee-filiere structuring:

SMEs

Banks

First Tier CGSs

Regional CGS

National Counter-Gurantee Fund

rationalisation

strengthening

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Policy considerations

Clear specification of targets and coordination with broaderset of SME policies

Scheme design is crucial to ensure sustainability andadditionality

Public-private partnership can bring information advantagesand expertise in credit risk management

Counter-guarantee funds generate important leverage, but allparties should retain risk and responsibility

Effect of financial reforms on CGSs should be thoroughlyassessed

Support organisational transition and skill upgrading in MGSs

Improve PGS reporting for monitoring and assessment


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THANK YOU

[email protected]

OECD CENTRE FOR ENTREPRENEURSHIP, SMEs &

LOCAL DEVELOPMENT(CFE)www.oecd.org/cfe

Documents

5. Session 3 Lucia OECD PPT