On the Impact of Government Credit Guarantees Programs on Firms' Access to Credit and Performance during the Financial Crisis

Project Start:08/2016
Researchers:Vasso Ioannidou, Jose Liberti, Thomas Mosk, Hélène Rey, Jason Sturgess
Category: Financial Intermediation
Funded by:LOEWE

This project aimed to evaluate the degree to which credit guarantee programs help mitigate the real effects of the financial crisis by alleviating credit constraints on creditworthy firms using the Dutch credit guarantee program, MKB Borgstellingskrediet. The characteristics of the Dutch guarantee program, along with changes to the program during the sample period, provide an interesting setting for studying the impact of such programs on credit availability, bank and firm behavior, and subsequent firm performance.


The use of government credit guarantee schemes to facilitate small and medium-sized enterprises’ (SMEs) access to credit is widespread in the European Union and other developed and emerging markets (Beck, Klapper, Mendoza, 2010). Although the extension of credit guarantee schemes was an important policy measure to prevent a credit crunch in the SME lending during the financial crisis, empirical evidence on the effectiveness of these policies remains sparse.


Under the Dutch guarantee scheme, qualifying firms can apply for a government guarantee loan. The decision to evaluate and originate the guarantee loans remains with the bank. To mitigate moral hazard concerns, the bank cannot obtain a credit guarantee for the full amount of the loan (i.e., a guarantee loan is essentially co-financed between the government and the bank). The maximum fraction of the loan that can be guaranteed by the government varies significantly across groups of firms and time. This variation combined with detailed loan application data from one of the largest Dutch banks allows us to study the impact of such guarantee programs during the crisis period.


The authors used this variation to study several related questions: (a) Do credit guarantees increase banks’ willingness to lend to SMEs and if so by how much? (b) Which firms benefit the most (e.g., young firms without prior access to bank debt, existing bank customers, customers of other banks, high qualify firms with insufficient collateral, poor quality firms with stained credit histories)? (c) What do they use this credit for? (d) Do firms that obtained a credit guarantee loan exhibit a superior or an inferior subsequent performance relative to their peers? Results on (a), (b) and (c) could provide insights about the degree to which credit guarantee programs increased firms’ access to bank credit alleviating credit constraints during the financial crisis and which firms benefited the most.

Related Published Papers

Author/sTitleYearProgram AreaKeywords
Vasso Ioannidou, Jose Liberti, Thomas Mosk, Jason SturgessIntended and Unintended Consequences of Government Credit Guarantee Programs
Finance and Investment: The European Case (Oxford University Press)
2018 Financial Intermediation