Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/161462
Authors: 
Yoshino, Naoyuki
Taghizadeh-Hesary, Farhad
Year of Publication: 
2016
Series/Report no.: 
ADBI Working Paper Series 586
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.
Subjects: 
small and medium-sized enterprises
SME financing
credit guarantee scheme
government guarantee
nonperforming loan
NPLs
macroeconomics
financial soundness
moral hazard
loans
JEL: 
H81
G21
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-nd/3.0/igo/
Document Type: 
Working Paper

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