Executive Summary
Test new lending approaches the bank is already
effective if provided to investment funds and non-bank
2. Understand tradeoffs in guarantee design: There is a
4. Do not underestimate the importance of working
interested in.
financial institutions.
capital: There is explicit and implicit demand from banks
tradeoff between access to finance and the cost of finance
– forcing banks to reduce interest rates to a new customer
and SMEs for guarantees that enable banks to experiment
segment counteracts the incentive to take greater risks. There is
with new types of working capital financing, enabled
also a tradeoff between the market-orientation of guarantees
through
and bank experimentation. Purely market-priced guarantees
non-traditional
securitization
discounting, supply chain finance).
may help banks “do more of the same” with their SME lending,
(e.g.
invoice
5. Consider the complementary role of capacity
but concessions may be needed to encourage entry into new
building: Banks believe that the development of SME
and uncertain markets.
management and finance capacity is critical to the success
3. Select the right partners: Bank commitment to utilizing
of guarantees and overall increased SME lending. Banks
interests that leads to engagement at all levels of the
and effectively utilize guarantees and/or to develop new
the guarantee must stem from a strategic alignment of
also require their own capacity building in order to efficiently
organization. When banks are not strategically aligned with
SME products.
the guarantee objectives, guarantees would be more
© AFD Working Paper 123 • Assessing Credit Guarantee Schemes for SME Finance in Africa • April 2012 9