and strengthen creditor rights. There is some evidence that credit guarantee schemes have contributed to more SME lending in the region – the MENA countries that have larger and more established PCGs have larger shares of SME lending and this result seems to hold when controlling for other factors.<sup>6</sup> The central policy question, however, is whether these schemes are cost-effective, i.e., whether they are able to target financially constrained SMEs, reach a significant number of these firms, and remain financially sustainable.

**The objective of this paper is to review the design of PCGs in MENA and assess their preliminary outcomes.** A survey was conducted in 10 MENA countries in early 2010 to gather the information needed for the assessment.  In each country, the largest credit guarantee scheme was surveyed. The survey covered the main rules of the scheme, the management of the scheme, and the key outcome indicators.  The survey results allow for a review of these schemes based on comparisons with other mature schemes outside the MENA region.

**The paper is structured as follows** .  The next section provides a brief survey of the literature on PCGs.  The third section describes the MENA survey and the methodology adopted for reviewing PCGs.  The fourth section reviews the rules of PCGs in MENA, while the fifth section provides a preliminary analysis of their outcomes.  Finally, the sixth section concludes and identifies the main elements of the agenda for improving the effectiveness of PCGs in MENA.

# **2 A Brief Survey of the Literature**

**There is a growing body of literature on partial credit guarantee schemes, reflecting the increasing interest on this type of policy intervention to support SME access to finance.** This literature can be classified into three broad areas. The first consists of cross-country surveys describing the main features of guarantee schemes (e.g. Beck and al. (2008), Bennett and al. (2005)). The second consists of individual country studies, including efforts to assess additionality (e.g. Ridding (2007), Cowan and al. (2009)). Finally, a third category focuses on best practices and design issues, drawing on the international experience (e.g. Deelen and Molenaar (2004), Green (2003)).

**The World Bank conducted the first large scale cross-country survey of PCGs in 2008** (Beck, Klapper, and Mendoza, 2008). The objective of this survey was to provide an overview of the key features of guarantee schemes around the world, such as eligibility criteria, coverage ratios, fees, and selected indicators of operational and financial performance. The sample comprised 76 guarantee schemes operating in 46 developed and developing countries (However, Egypt was the only MENA country included).  The survey shows that there are large differences in the organizational features and rules of guarantee schemes around the world. Interestingly, these differences are not systematically related to financial and economic development. One of the many interesting findings of the survey is that few guarantee schemes around the world use risk-based pricing or risk-management mechanisms. The authors call for further empirical research on specific schemes to better understand which features work best in practice. They also stress the importance of doing proper cost-benefit analysis to assess whether guarantee schemes are cost-effective.

> 6 Rocha, Farazi, Khouri, and Pearce (2010).

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