Sida and innovative finance: The case of loan guarantee schemes

Abstract

Sida is exploiting loan guarantee schemes to leverage finance from the private sector in partner countries. This paper is a literature review of the rationale for and experiences of this type of schemes, focusing on Small and Medium Enterprises. Since, credit rationing and moral hazard problems certainly occur in partner countries, loan guarantee schemes could become an important instrument for Sida. Loan guarantee schemes are popular in many countries and the overall experience seems to be positive. Unfortunately, impact evaluations are uncommon. The schemes have positive effects on short-run financial outcome of companies and, in the long run, economic outcomes are more often positive than negative.