NOVEMBER 2006 JGARSON 1

GUARANTEE SYSTEMSIN AFRICA

SETTING UP EFFECTIVE

DEVELOPMENT FINANCE INSTRUMENTS

J. Garson

NOVEMBER 2006 JGARSON 2

NOVEMBER 2006 JGARSON 3

Definition

Guarantor

B A N K(1)

(2)(3)

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A lost cause ?

1. “All GFs did fail in Africa”2. Levitsky: GFs are bound to fail3. Anyway:

– Moral hazard– Free rider– Logic

NOVEMBER 2006 JGARSON 5

Yet....

1. GFs worked well in Europe and in many DCs

2. No other answer to the issue of collateral

3. Cultural divide ?4. Donors’ self interest ?

NOVEMBER 2006 JGARSON 6

Revisiting the issue

1. Clarify the objective of GSs2. Designing GSs is a science, not a

(political) art3. Managing GSs is a science, not...4. Setting up/Rehabilitating GSs: a

not too easy

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1. Objectives of GSs

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GUARANTEE SYSTEMS

GUARANTEE FUNDS MUTUALGUARANTEE

ASSOCIATIONS

GOVERNMENTSWANT TO HELP

ECONOMIC ACTORSWANT TO HELPTHEMSELVES

GOVERNMENTSWANT TO HELP

2a

2b

1

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Guarantee Funds

G F

B A N K(1)

(2)(3)

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Mutual Guarantee Associations

RF

B A N K(1)

(2)(3)

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MGAs

1. More than 120 years2. Self-managed “club”3. RF = members (+ Govt + Donors)4. Cottage enterprises, SMEs,

dentists, housing5. Levitsky ???

NOVEMBER 2006 JGARSON 12

The replenishment issue

Guarantee funds

1. Rely on Budget2. One-year barrier3. Transparency4. Problem?

MGA

1. Membership fees2. Self-blocking

mechanism3. Transparency

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1. Objective of GSs

2. What is a good design?

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Key Parameters

1. Percentage of coverage2. First-demand guarantee3. Speedy bilateral procedures4. Check additionnality5. Maintain separate assessments

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Know Who You Are

1. GSs only clients: banks2. GSs only asset: credibility vis-à-

vis banks3. GSs only obsession: keep that

credibility as high as possible

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Know How You Impact Banks

1. Donors mistake: “they want it”2. A loss is a loss, even with a GS3. GSs additionnality: just tilt the

balance for “grey area” cases4. Help convince Banking

Commissions

NOVEMBER 2006 JGARSON 17

1. Objective of the GSs ?

2. What is a good GS design ?

3. What is a good GS management ?

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Know Your Strength

1. Negotiate with Banking Commission

2. Keep them competing for your guarantee

3. Do use counterguarantees as sanctions

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1. Objective of GSs

2. What is a good GS design ?

3. What is a good GS management ?

4. Setting up GSs

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Setting up/Rehabilitating GFs

1. Continental GF: FSA2. Sub-Regional GFs

– GARI– Fagace

3. National GFs– FODEX

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GUARANTEE SYSTEMS

MUTUALGUARANTEE

ASSOCIATIONS

ECONOMIC ACTORSWANT TO HELPTHEMSELVES

GOVERNMENTSWANT TO HELP

2a

2b

BANKS WANT TODEVELOP MLT

LENDING

2c

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Setting up MGAs

1. Governments (Turkey, Spain…) 2. Donors (Philppines)3. Members themselves (France,

Germany)4. Banks (West Africa, Cameroon)

NOVEMBER 2006 JGARSON 23

THANK YOU !

jose.garson@bred.fr