Financial Entrepreneurship for Economic Growth in Emerging Nations by Atsede Woldie Brychan Thomas

Author:Atsede Woldie,Brychan Thomas
Language: eng
Format: epub
Publisher: IGI Global

Source: adopted from OECD (2013; page 11)

Based on their review of literature on CGSs, Samujh, et al. (2012) classify the objectives of CGSs at macro and micro levels. At a macro level, CGSs are designed to assist in achieving predetermined national policy goals including: (i) improvement of welfare, (ii) employment creation and job retention, (iii) accelerating economic growth and increasing employment, (iv) reducing poverty, through the expansion of MSMEs or income-generating projects, and (v) correcting imperfections in the market (or compensating the market failure) for MSMEs loans. While at a micro level, a CGS has objectives with respect to both sides, i.e. the borrowers-side and the lenders-side. For the borrowers-side, it is intended to increase loan availability to and to improve access to finance for them, especially for new start-up businesses so they can grow, and to reduce costs of borrowing. For the lenders-side, it is to encourage banks and other financial institutions to lend to MSMEs, which do not have or are unable to provide adequate collateral or unable to prove their creditworthiness, by e.g. diversifying risk across lenders, overcoming information asymmetries by involving guarantors in the application and monitoring processes, and allowing lenders to shift loan recovery risks to guarantors.

As said before, all existing CGSs in many countries have the common purpose of creating greater access to formal financing for their promising MSMEs. But there are wide variations in how the schemes are set up and operated. These differences come about because of adaptations to their operating environment, i.e. the level of economic development, the existing financial landscape (e.g. the levels of development of commercial banks and other formal financial institutions and capital market), the level of development of MSMEs, the social-cultural condition, and the prevailing rules and regulations not only on the financial sector but also on the economy as a whole. Given all those mentioned local conditions, the right choice of any of all types to be adopted in implementing CGSs is thus crucial, as it will determine the success of the scheme. Deelen and Molenaar (2004) define CGS in several types as presented in Table 1. The main point of distinction of CGS can also be made by the operator of the scheme. In this respect, five major types of CGS is classified by Green (2003): mutual guarantee associations, publicly operated national schemes, corporate/privately operated schemes, those arising from bilateral or multilateral co-operation, and schemes operated by NGOs. If the main point of distinction of CGS is the ownership structure and role of shareholders in the management of the scheme, CGS can be classified into three main typologies (OECD, 2013): public guarantee schemes, public-private (or mixed) guarantee schemes, or private guarantee schemes.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.