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Principles for Public Credit Guarantee Schemes (CGSs) for SMEs

Credit markets for small and medium size enterprises (SMEs) are characterized by market failures and imperfections. Up to 68% of formal SMEs in emerging markets are either unserved or underserved by financial institutions, with a resulting credit gap estimated to be close to $1 trillion.

Public credit guarantee schemes (CGSs) are a common form of government intervention to unlock finance for small and medium enterprises (SMEs). More than half of all countries in the world have a CGS for SMEs and the number is growing. A credit guarantee scheme provides third-party credit risk mitigation to lenders through the absorption of a portion of the lender’s losses on the loans made to SMEs in case of default, typically in return for a fee.

However, the international community lacks a common set of principles or standards that can help governments establish, operate and evaluate CGSs for SMEs. Now, the World Bank Group and the FIRST Initiative have launched a new tool to help governments implement public credit guarantee schemes. The tool is intended to become the standard for effectively and efficiently establishing and running public CGSs for SMEs around the world.

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