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Credit Where Credit is Due: Partial Credit Guarantee Schemes in the Middle East and North Africa

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Editor's Note: The following post was submitted jointly by Youssef Hassani, Economist, MENA, Zsofia Arvai, Senior Financial Economist, MENA, and Roberto Rocha, Senior Adviser, MENA.

Many countries in the Middle East and North Africa (MENA) region have established partial credit guarantee schemes (PCGs) to facilitate SME access to finance. These guarantee schemes can potentially play an important role, especially in a period where MENA governments are still making efforts to reduce risks for lenders by improving the effectiveness of credit registries and bureaus and strengthening creditor rights. However, the contribution of credit guarantee schemes to SME finance depends largely on their design. 

Well designed schemes may be able to achieve significant outreach and additionality, i.e. benefit a significant number of SMEs that have substantial growth potential but are effectively credit constrained due to lack of credit information and collateral. In some countries PCGs have also played an important capacity-building role. By contrast, poorly designed guarantees schemes may have a limited development impact by providing guarantees to firms that are not credit constrained. PCGs may also accumulate losses by providing overly generous and underpriced guarantees, and ultimately become a burden to public finances.

In order to review the design of partial credit guarantee schemes in MENA and make a first assessment of their outcomes, we conducted a survey of 10 guarantee schemes in early 2010. The survey covers all relevant aspects of scheme design and operations, including mission statements, rules of the schemes, operational procedures, and the main outcomes.    

We found that the average size of credit guarantee schemes in MENA (measured by the total value of outstanding guarantees) is about 0.3% of GDP, broadly in line with the international average, although there are wide differences across countries, and some schemes seem too small to make any significant impact. However, the number of guarantees looks generally small by international comparison while their average value looks generally large (see Figures 5 and 6 below). This suggests that guarantee schemes are not yet reaching the smaller and possibly more constrained firms. Guarantee schemes in MENA look financially sound and most schemes have room to grow. However, this growth should be accompanied by improvements of some key design and management features, as well as greater efforts to evaluate the impact of the schemes.


Regarding the main design features, there seems to be scope for calibrating the eligibility criteria of most guarantee schemes. Some schemes should consider tightening their eligibility criteria to improve targeting (e.g. reducing the ceiling on firm and loan size), while other schemes may need to build an additional margin of flexibility. Moreover, some schemes should consider reducing slightly their coverage ratios—the percentage of the loans covered by the guarantee—to levels closer to international standards and also link both coverage ratios and fees more closely to risk. In some MENA countries guarantee schemes could also play a more proactive role in capacity building. Finally, guarantee schemes should institutionalize a comprehensive review process. This comprehensive review should be conducted on a regular basis using appropriate analytical tools, including an SME survey and a banking survey. One good example potentially worth following is the Comprehensive Review conducted in Canada every five years by the Small Business Financing Program.

Further Reading

Youssef Hassani, Zsofia Arvai and Roberto Rocha. A Review of Credit Guarantee Schemes in the Middle East and North Africa Region. October 2010.


Roberto Rocha

Senior Adviser, Middle East and North Africa

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