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NOVEMBER 2006 JGARSON 1 GUARANTEE SYSTEMS IN AFRICA SETTING UP EFFECTIVE DEVELOPMENT FINANCE INSTRUMENTS J. Garson
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)
NOVEMBER 2006 JGARSON 4
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
NOVEMBER 2006 JGARSON 7
1. Objectives of GSs
NOVEMBER 2006 JGARSON 8
GUARANTEE SYSTEMS
GUARANTEE FUNDS MUTUALGUARANTEE
ASSOCIATIONS
GOVERNMENTSWANT TO HELP
ECONOMIC ACTORSWANT TO HELPTHEMSELVES
GOVERNMENTSWANT TO HELP
2a
2b
1
NOVEMBER 2006 JGARSON 9
Guarantee Funds
G F
B A N K(1)
(2)(3)
NOVEMBER 2006 JGARSON 10
Mutual Guarantee Associations
RF
B A N K(1)
(2)(3)
NOVEMBER 2006 JGARSON 11
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
NOVEMBER 2006 JGARSON 13
1. Objective of GSs
2. What is a good design?
NOVEMBER 2006 JGARSON 14
Key Parameters
1. Percentage of coverage2. First-demand guarantee3. Speedy bilateral procedures4. Check additionnality5. Maintain separate assessments
NOVEMBER 2006 JGARSON 15
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
NOVEMBER 2006 JGARSON 16
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 ?
NOVEMBER 2006 JGARSON 18
Know Your Strength
1. Negotiate with Banking Commission
2. Keep them competing for your guarantee
3. Do use counterguarantees as sanctions
NOVEMBER 2006 JGARSON 19
1. Objective of GSs
2. What is a good GS design ?
3. What is a good GS management ?
4. Setting up GSs
NOVEMBER 2006 JGARSON 20
Setting up/Rehabilitating GFs
1. Continental GF: FSA2. Sub-Regional GFs
– GARI– Fagace
3. National GFs– FODEX
NOVEMBER 2006 JGARSON 21
GUARANTEE SYSTEMS
MUTUALGUARANTEE
ASSOCIATIONS
ECONOMIC ACTORSWANT TO HELPTHEMSELVES
GOVERNMENTSWANT TO HELP
2a
2b
BANKS WANT TODEVELOP MLT
LENDING
2c
NOVEMBER 2006 JGARSON 22
Setting up MGAs
1. Governments (Turkey, Spain…) 2. Donors (Philppines)3. Members themselves (France,
Germany)4. Banks (West Africa, Cameroon)
