Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/222812
Authors: 
Taghizadeh-Hesary, Farhad
Yoshino, Naoyuki
Fukuda, Lisa
Year of Publication: 
2019
Series/Report no.: 
ADBI Working Paper Series No. 1045
Abstract: 
Small and medium-sized enterprises (SMEs) have difficulties in accessing finance because of information asymmetry and a lack of collateral. A credit guarantee scheme is a suitable method to unlock lending to SMEs; however, it involves SMEs paying a fee, which needs to account for their risk. The question is how to calculate the optimal fee. The paper provides a theoretical model for calculating the optimal credit guarantee fee. In the empirical part, this study investigates whether selected macroeconomic variables and the financial health of SMEs have a statistically significant impact on the default risk ratio of SMEs, which is the main determinant of the fee. We use selected macroeconomic variables and the financial profiles of 1,363 SMEs that are customers of an Iranian bank. We use principle component analysis and two vector error correction models, and we provide a robustness test using the generalized method of moments. The empirical results support our hypothesis that the credit guarantee fee should be different for sound (lower) and unsound (higher) SMEs to avoid moral hazard but also according to the macroeconomic state (a decrease in a recession and an increase in a boom).
Subjects: 
SME finance
credit guarantee scheme
credit guarantee fee
credit constraints
JEL: 
H81
G21
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-nd/3.0/igo/
Document Type: 
Working Paper

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