Almost every Ibero-American countries have a guarantee scheme for favoring financing access to micro, small and medium enterprises. These systems have been multiplied by ten in the last ten years. The last Ibero-American forum about guarantees showed very optimistic figures.

Just in Ibero-America, exist 110 guarantee entities having an outstanding guarantee volume near to US$ 30 billion with more than 2 million 300 thousand companies users of these systems and who moves credit outstanding balance figures of US$ 40 billion.

From all these entities, Latin America has 83 guarantee entities with an approximate volume of US$ 20 billion and more than 2 million 200 thousand user SMEs, which move an outstanding balance around US$ 30 billion.

Those figures are amazing because 10 years ago, in 2000, 23 guarantee entities and 358 thousand beneficiary micro and SMEs were registered moving US$ 2,200 million in credits.

The technical secretary of Ibero-American Network of Guarantee Institutions (Regar), Pablo Pombo, stated that “in a decade, these figures have been multiplied by 10”.

In the XVI Ibero-American Forum of Guarantee systems and financing for micro companies and SMEs hold in Costa Rica on 8th and 9th of September, Pombo added that “today more than 3 million of companies are benefited for this activity” and that “the region is above other continents with more tradition in guarantee topic”.

This meeting served to know figures and more recent data that vitalize guarantee environment. For example, the Costa Rican minister of Economics, Industry and Trade and Head of the Banking System for Development (SBD), Mayi Antillón, highlighted guarantee granting is one of the main instruments for the development banking and revealed in Costa Rica improvements in the financing scheme are needed due to the excess offer in credit resources for SMEs, who cannot access to them for the lack of credit access mechanisms. 

For the minister, surety for credit is fundamental because it benefits portfolios and projects done by SMEs.

Guarantee sustainability
As it is known, guarantee systems/schemes are not homogenous. They are heterogeneous, because different visions and perspectives in the operating exist. The important point is to determine through frequent self-evaluation if they are fulfilling its function. This self-evaluation will provide sustainability to guarantee systems.

In this regard, forum highlighted the need of: i) consider differential characteristics of the mutual guarantee entities model, weaknesses and strengths; ii) be aware about what is your business model, what key factors affect the business model sustainability (price, proximity, capacity to take decisions different from the bank for the same client or operation and added value services), and lastly iii) consider market, finance, corporative or politic trends and map frequently threats and opportunities.  

To secure sustainability, guarantee entities must: generate their own incomes to cover costs and derivatives from risk guarantees; manage risks under a comprehensive approach where aspects as policies, organization and technical models are considered; and quantify risks since it is a need for guarantee entities and regulators. 

The impact of a possible guarantee risk sub-estimation assumed by guarantee entities can have implications in sustainability and turn into vulnerability in financing system in general.

According to forum participants, other challenges in favor of guarantee sustainability are the construction of better alliances public-private; search of corporative support; search of partners’ volume scale; increase of service portfolio; securing of financing resources for a local risk fund; and local economy sectors diversification.

It is also important to keep a proper mandatory frame for guarantee system because without it, there is the risk system can be ignored, rejected or totally disproved, declared Fogaba.

Surety power
Iberaval ruled out the influence capacity surety has to guaranty financing to SMEs and independent workers during a time economic reactivation to recover employment is key. In this regard, Iberaval detailed conclusions of a research consultant KPMG was in charge of, showing that operation concession with surety to SMEs and independent workers allows financing entities to obtain competitive advantages in comparison to other formulas.

As detailed in the report, a minor consumption of own resources is needed, coming from capital lower percentages demanded by the regulator. This implies the possibility of concede a great number of operations increasing its activities. On the other hand, minor expenses are made for not having the duty of storing provisions, including generics and specifics, for operations that have the surety of a Mutual Guarantee Societies (MGS). All of this without entering into the savings involving the risk follow-up cost, previous analyses, recruitment, etc; service portfolio where MGS and Iberaval are specialists.

In light of their experience, the members of the Asociación europea de Caución Mutua (European Association of Mutual Safety) emphasized the need of having a national and supranational counter-guarantee as a key factor to keep the guarantee systems. Moreover, Fonpyme explained how important is for the region to establish the re-bonding as a key financing instrument for the sustainability of guarantee systems throughout times.

In brief, the forum put emphasis on how well the systems have worked and gave as an example the solvency ratio (core capital), which is 30% when Basilea requires between 8 and 10%. Moreover, the need for these systems to have public support (regardless the operating model) was discussed. This is justified by the market failures and because the public intervention as support for SME financing is necessary.

Also, it was stressed that determining the guarantee cost must not be considered just as a simple financial calculus. It is required to develop a broader public SME policy that addresses issues of social cohesion and employment preservation as an important benefit.

The 17th Ibero American Forum of Systems 2012 will be held in Argentina.