2. Credit guarantee system and its significance in rural and agriculture development
2.2. Types of credit guarantee schemes
More than 2,250 credit guarantee schemes can be distinguished, operating in almost 100 countries46. In most guarantee schemes, the SMEs sector constitutes the target group and the programmes generally do not introduce sectoral con-straints (unless it is public aid in de minimis form), or concon-straints related to the size of the enterprise or the type and the amount of the credit. They operate main-ly on the state level. However, there are more and more cases of regional schemes and/or schemes covering the whole continent (e.g. Proyecto Cambio for Central America). There are also guarantee schemes that include only one region of the national economy (e.g. Serbian Vojvodina Development Fund). Some have even smaller regional scope, and are created by the local authorities to promote micro- and small enterprises and the agribusiness at the district level (e.g. Municipal GFs in Bosnia and Herzegovina)47. In some countries e.g. in France or Belgium, sev-eral guarantee schemes operate simultaneously (Table 2.1).
Table 2.1. Credit guarantee schemes in the EU countries (EU-25)
Public surety schemes
Schemes at the national level
Denmark, Finland, France, Greece, Lithuania, Malta, Netherlands, Poland, Slovakia, Sweden, UK International schemes
(e.g. EFI, PHARE) Most of the EU countries
Surety funds
Mutual sureties Austria, Belgium, France, Italy, Luxembourg, Portugal, Slovakia, Spain
Credit surety funds Czech Republic, Hungary, Germany, Lithuania, Poland Other systems Mixed type models, local
funds
Belgium, Finland, France, Greece, Hungary, Italy, Ireland, Lithuania, UK
Source: J. Próchniak, Ocena dziaáalnoĞci systemu funduszy porĊczeĔ kredytowych w Polsce, Oeconomia Copernicana 2010 no. 1, p. 124.
Financing of different guarantee schemes may originate from various sources, and may differ due to the manner of granting the support (Table 2.2).
This results in a fact that they may be characterised by some restrictions related to the financing of guarantee activity.
46 A. Green (2003), Credit Guarantee Schemes for Small Enterprises: An Effective Instrument to Promote Private Sector-Led Growth?, The United Nations Industrial Development Organization (UNIDO) Working Paper No 10, p. 23.
47 R. Zander, C. Miller, N. Mhlanga, Credit Guarantee Systems for Agriculture and Rural Enterprise Development, FAO, Roma 2013, p. 7.
Table 2.2. Sources of guarantee schemes financing Source of financing The most popular
support model Benefits Funding constraints Government Non-portfolio
scheme
Losses paid directly from the state budget
Central Bank Individual and port-folio schemes
Banks Individual and port-folio schemes Small entrepreneurs Mutual programme Involvement and trade
ex-perience
Limited funds for extension Source: L. Deelen, K. Molenaar, Guarantee Funds for Small Enterprises, International La-bour Organization, Switzerland 2004, p. 51.
A. Green identifies five major guarantee programmes. These are48:
x Public guarantee schemes managed by a private organization or a govern-mental administrative unit. In case of a failure to repay the loan, the guaran-tee is paid directly from the state budget.
x Corporate guarantee schemes that are financed and conducted by the private sector (e.g. banks, chambers of commerce), without any support from the public authorities.
x International schemes, being bilateral or multilateral governmental or non- -governmental initiatives, e.g. the European Investment Fund (EIF), United Nations Industrial Development Organization and the International Labour Organization). These programmes often combine the guarantee fund with the technical assistance for the enterprises. For instance, the European Invest-ment Fund (EIF) manages sureties for the SMEs sector under the European Commission. Guarantee activity includes mandate transactions, when EIF manages and distributes funds from the EU budget for financing of financial instruments and own risk transactions where EIF places equity. Most transac-tions belongs to the mandate category. The role of the European Investment
48 A. Green (2003), Credit Guarantee Schemes for Small Enterprises: An Effective Instrument to Promote Private Sector-Led Growth?, The United Nations Industrial Development Organization (UNIDO) Working Paper No 10, pp. 18-19.
Fund is to provide guarantees directly to the local banks or granting them the counter-guarantee. In 2007-2013, the total value of EIF’s guarantee portfolio in the selected European countries was more than EUR 4.9 billion (Table 2.3).
The largest share in portfolio value of the guarantee transactions was recorded in Poland and constituted 26.91%. Significantly smaller shares were recorded in Albania, Bosnia and Herzegovina as well as in Macedonia and Serbia.
Table 2.3. The value of the guarantee transactions portfolio of the European Investment Fund in the selected European countries in 2007-2013,
[in EUR million]
Country
The value of guarantee transactions portfolio
[in EUR million]
Share in the value of the guarantee transactions
portfolio [%]
Albania 20 0.41
Bosnia and Herzegovina 20 0.41
Bulgaria 875.4 17.84
Croatia 119.5 2.43
Czech Republic 546.4 11.13
Hungary 522.4 10.64
Kosovo 20 0.41
Macedonia 15 0.31
Poland 1,320.9 26.91
Montenegro 20 0.41
Romania 718.1 14.63
Serbia 16 0.33
Slovakia 501.3 10.21
Slovenia 192.9 3.93
Total 4,907.9 100
Source: EBCI (2014), Credit Guarantee Schemes for SME lending in Central, Eastern and South-Eastern Europe, A report by the Vienna Initiative Working Group on Credit Guarantee Schemes.
x Schemes implemented by international non-governmental organizations without specialized financial institutions and are not subjected to the control of the central bank or similar institution, but may prove services related to risk-sharing.
x Mutual guarantee schemes, the so-called mutual guarantee associations, societies/funds. These are private and independent organizations formed and managed by borrowers with limited access to bank credits.
The OECD distinguishes three types of guarantee schemes49, namely:
x Mixed with private entities offering guarantees and public entities offering counter-guarantee (typical of the older EU Member States). Such a system operates, for instance, in Portugal. Three institutions operate within it. The first one is formed by the Mutual Guarantee Societies (MGS), which are re-sponsible for granting guarantees for entities from SMEs sector (these are Garval MGS, Lisgarante MGS and Norgarante MGS – connected to the sec-tor of the Ministry of the Economy), and Agrogarante MGS operating na-tionwide in the agricultural and forest sector. These are mostly private credit institutions, involved in professional management and subjected to the super-vision and control by the Central Bank. The second entity is the Mutual Counter-Guarantee Fund (FCGM) consisting only of public capital (the Min-istry of Economy and the MinMin-istry of Agriculture, Rural Development and Fisheries). Its purpose is the partial coverage of the guarantees granted by the MGS. It is the national “reinsurance” of funds, which covers a part of the risk connected with the MGS’s operations. In turn, the third institution is the PGM – Sociedade de Investimento, which is responsible for the management of the FCGM.
x Public guarantee fund (often present in the new EU Member States). Such a system operates, for example, in Lithuania, where the Invega fund was creat-ed, offering business and investment guarantees. The fund is wholly owned by the state (subject to the Ministry of the Economy), and operates in the form of a limited liability company. It cooperates with commercial banks, leasing companies and SACCOs. It uses counter-guarantee granted by the EIF. Sup-port of the state is present in the form of de minimis aid and, therefore, is bound by sectoral constraints (according to the principles stated by the Euro-pean Commission). The state is responsible for all Invega’s liabilities.
x Private (mutual) guarantee scheme without any support from public authori-ties (rarely occurring, such institutions try to obtain counter-guarantee at the national or the EU level, e.g. the EIF). An example of this is the Societes de Cautionnement Mutuel (SOCAMA) in France. The scheme offers support for small and medium-sized enterprises operating in the form of a limited liabil-ity company. It uses own funds and the EIF’s counter-guarantees.
A similar division of the credit guarantee schemes was made by T. Beck, L.F. Klapper and J.C. Mendoza. Authors also indicated functioning of three guarantee schemes, in the form of:
49 OECD (2012). SME and Entrepreneurship Financing: The Role of Credit Guarantee Schemes and Mutual Guarantee Societies in supporting finance for small and medium-sized enterprises, pp. 11-18.
x The Mutual Guarantee Associations that are formed by the independent enter-prises and/or organizations, which provide credit guarantees for credits grant-ed for its members, who are shareholders and/or are on the Board of Direc-tors. These entities may receive support of the government (exist in e.g. Italy).
x Public guarantee schemes that are an initiative of the government and oper-ate at the local, regional or national level. They are mainly creoper-ated under the public policy towards ensuring financial means for the SMEs or for priority sectors or a demographic group (e.g. women or minorities). This scheme is publicly funded, and may be managed by private entities (exist in e.g.
Poland), corporate associations generally financed and used by the private sector (exist in e.g. Greece and Romania)50.
2.3. Credit guarantees – financial instrument of the European Union