Small Business Guarantee Fund Fund Manager Guide

Author: (Dutch) Dylan, (Dutch) Molenar
Publisher:
Publishing Date: 2007-01-01
Features: The Small Business Guarantee Fund can help small business owners access bank financing more easily. Many viable projects fail to secure funding due to lack of collateral or insufficient collateral, resulting in no investment activities and no job creation. In such cases, the guarantee fund can play a role. The guarantee fund provides a risk-sharing mechanism and attempts to incentivize financial institutions to explore new market spaces.
The success of a guarantee fund largely depends on its product design, specifically how to establish incentive and penalty mechanisms and how to manage the fund. Among these, establishing a risk-sharing mechanism, setting guarantee standards, managing personnel, and internal reporting and control systems are particularly crucial.
Another important condition is that the professionals of the guarantee fund must maintain close contact with their clients, i.e., the business owners. This will give banks confidence that using the guarantee fund can indeed help them better understand their business clients and make reasonable risk assessments. In specific cases, the financial situation often determines the characteristics of the guarantee fund.
Not all guarantee funds in the world have achieved their goals. Some failures are attributed to political interference, where the fund managers fail to adhere to sound financial principles. Others result from designing guarantee plans based on unrealistic expectations to secure more bank loans, and the guarantee funds are unable to transform bad investments into feasible ones.
The International Labour Organization (ILO) believes that credit guarantee funds can redirect investment toward industries that play a significant role in job creation and economic growth, namely small and medium-sized enterprises. In many countries, well-designed and managed guarantee funds have indeed promoted the development of small businesses.
Since 1992, the ILO Social Finance Program has provided training and technical support to credit guarantee funds worldwide. In 2000, the Social Finance Department published the first edition of the "Operational Guide for Small and Micro Enterprise Guarantee Funds." This book has now sold nearly 1,000 copies and has been translated into multiple languages, including French, Spanish, Chinese, and Russian.