World Bank Group, FIRST Initiative launched Principles for Public Credit Guarantee Schemes

World Bank Group and FIRST Initiative on 14 December 2015 launched Principles for Public Credit Guarantee Schemes (CGSs).

The principles provide a generally accepted set of good practices that can serve as a global reference for the design, execution and evaluation of public CGSs that serve small and medium enterprises (SMEs).

Why the principles were launched?

As per an estimate of the World Bank, up to 68 percent of formal SMEs in emerging markets are either unserved or underserved by financial institutions, with a resulting credit gap estimated to be close to 1 trillion US dollars

To fill the gap, the governments across the world have been launching CGS to provide third-party credit risk mitigation to lenders by absorbing a portion of the lender’s losses on loans made to SMEs in case of default.

However, CGSs may add limited value and be costly when they are not designed and implemented well. Until now, the international community has not had a common set of principles or standards that can help governments establish, operate, and evaluate CGSs for SMEs.

About FIRST Initiative

• The Financial Sector Reform and Strengthening Initiative (FIRST) promotes robust and diverse financial sectors in developing countries by providing rapid, targeted support.
• It leverages the technical expertise of the World Bank Group and IMF to encourage financial sector development through technical assistance projects.
• Till now, the initiative has funded more than 690 projects in about 120 countries, deploying over 140 million US dollars.

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