Credit Guarantee Schemes - all over the globe - and here in DC
From this week's Partial Credit Guarantee Conference, we learned that credit guarantees have become the direct intervention mechanism of choice of SME credit activists. Almost all of the OECD countries have them, as well as many developing countries. Multilateral and bilateral donors support them throughout the developing world.
While government is heavily involved in funding and management of these schemes, loan assessment and recovery are mostly undertaken by the private sector, mostly by the lenders - and perhaps for the better, as schemes where the government is in charge of choosing borrowers and recovering loans have typically higher loan losses.
Comments (1)
Delicious
E-mail
Facebook
Follow us on Twitter
In a small rice farming village in northern Philippines that I visit regularly, I notice that government credit program is zero, but the credit market is alive. The system is locally-called "tampa": for every PhP 1,000 of loan, the farmer-borrower pays the lender 3 sacks of 50 kilos/sack unmilled rice.
Loan repayment is high because the lenders and borrowers know each other. Bad borrowers are easily blacklisted, or lent small amount only, until he/they improve their credit image among the neighbors. In case of disasters like strong typhoon that destroys or wipes out the rice harvest, the lender can wait for the next crop, or the borrower can pay in kind like chicken or goat or other farm animals.
Lesson: zero govt involvement in lending is possible, and is often desirable. No taxes and bureaucracies needed, no political patronage and small-time-cronyism.
Posted by: Nonoy Oplas, Philippines | Mar 16, 2008 10:15:07 PM