Credit guarantee schemes as an instrument to promote access to finance for small and medium enterprises: An analysis of Khula Enterprise Finance Ltd's individual credit guarantee scheme

Nigrini M. ; Schoombee A. (2002)

Article

Small and medium enterprises (SMEs) face many constraints, such as lack of credit, which hinder them from reaching their job-creating potential. This article focuses on the constraints that increase banks' risk in lending to SMEs, and how credit guarantee schemes are used to overcome some of them. In South Africa. Khula Enterprise Finance Limited, a government initiative, operates three such guarantee schemes. This article explains the functioning of one of the schemes, namely Khula's Individual Credit Guarantee Scheme. Its performance is evaluated with reference to international best practices. Although it is generally found to operate efficiently, there are various aspects concerning the functioning of the scheme that influence negatively the willingness of banks to participate. These problems need to be addressed, as the authors are convinced that a credit guarantee scheme, with all its problems, still remains a viable way for the government to lower the normally high risk involved for banks in dealing with SMEs, and in this way to entice them to serve SMEs.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/12025
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