Are Loan Guarantees Effective? The Case of Mexican Government Banks

48 Pages Posted: 28 Jul 2005 Last revised: 20 Aug 2008

Date Written: April 2008

Abstract

Mexican Government's Banks offer loan guarantees to private banks in order to spur credit directed to non-financial small and medium sized firms and this policy is examined here. Application of representative data to the comparative static analysis of the guarantee-use decision suggests that these schemes, as currently designed, are justifiable from an economic viewpoint. However, there is some evidence of inefficiency and ineffectiveness about the way these guarantee programs operate. Marginal take-up is plausibly explained only by the benefits perceived by private bankers.

Keywords: Adoption incentives, bank credit, government-loan guarantees, Mexican banks

JEL Classification: C22, D61, G21, G38

Suggested Citation

Benavides, Guillermo and Huidobro, Alberto, Are Loan Guarantees Effective? The Case of Mexican Government Banks (April 2008). Available at SSRN: https://ssrn.com/abstract=637385 or http://dx.doi.org/10.2139/ssrn.637385

Guillermo Benavides (Contact Author)

Banco de Mexico ( email )

Cinco de Mayo # 2
Mexico DF, 06059
Mexico

Alberto Huidobro

Bank of Mexico ( email )

Av. 5 de Mayo 18
Piso 4
Col. Centro 06059, 06059
Mexico

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