# **6 Summary of Findings and Policy Implications**

**Partial credit guarantee schemes can play an important role in MENA countries.** Improving financial infrastructure should remain the policy priority in MENA, but guarantee schemes can also make an important contribution to SME finance, especially in the period when governments are making an effort to remedy the deficiencies in credit information and creditor rights. There is some empirical evidence suggesting that guarantee schemes have contributed to SME lending in some MENA countries or, equivalently, that countries with larger schemes have larger shares of SME lending in total lending.<sup>15</sup> However, this result does not necessary imply that MENA guarantee schemes are well designed and costeffective.  Improvements in design could arguably allow these schemes to reach a larger number of constrained SMEs with the same volume of resources.

**This paper reported the results of a survey of guarantee schemes in the region and represents the first effort to assess their effectiveness** .  Ten guarantee schemes were covered by the survey, varying significantly in size and maturity.   The paper reviews the design of the schemes against a diversified benchmark group comprising developing and developed countries, and makes a preliminary assessment of outcomes.

**Regarding the main outcomes, outreach indicators portray a mixed picture** . The average size of guarantee schemes in MENA is in line with the international average (outstanding guarantees amount to about 0.3% of GDP).  However, there are wide differences across countries, and some schemes seem too small to make any significant impact on SME lending. More importantly, the number of guarantees issued per year (scaled by the population) looks very low by international comparison, while the average value of guarantees seems relatively large.  This suggests that guarantees are still concentrated in a relatively limited segment of firms, and do not yet reach a significant number of smaller firms.

**The survey responses do not allow for a meaningful assessment of additionality.** MENA schemes are not yet conducting systematic impact evaluations, to measure the extent to which they have succeeded in targeting financially constrained firms.  Some schemes seem more targeted than others, but the available indicators do not allow for a meaningful assessment of additionality.

**Guarantee schemes in MENA look financially sound and most schemes have room to grow** . Guarantee schemes in MENA report comparatively low net loss ratios and are not highly leveraged.  Most schemes have a sufficient equity base to grow further and improve their outreach, while some schemes may require a large equity base to achieve a meaningful size and make an impact on SME lending. **However, this growth should be accompanied by an improvement of key design and management features, as well as the introduction of systematic impact evaluation reviews.**

**Regarding the main design features, there seems to be substantial scope for calibrating the eligibility criteria of most guarantee schemes.** Some schemes should consider tightening their eligibility criteria to improve targeting (e.g. reducing the ceiling on firm and loan size), while other schemes may need to build an additional margin of flexibility.

> 15 Rocha, Farazi, Khouri, and Pearce (2010).

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