SME Financing and Credit Guarantees: Evidence and Design Lessons from Albania and the Western Balkans

This paper assesses the effectiveness of credit guarantee schemes (CGSs) as a policy instrument to improve small and medium-sized enterprise (SME) access to bank finance in Albania and the Western Balkans. SMEs often face credit rationing due to collateral gaps and information asymmetries, while weakly designed guarantees can dilute screening incentives, generate moral hazard, and raise fiscal exposure. The study suggests an evaluation framework that combines three quantitative indicators—guarantee coverage, SME default rates, and SME loan growth—with a design assessment of eligibility and targeting, pricing and fees, risk-sharing arrangements, and claims and monitoring procedures. Using a structured multi-year dataset (2018–2024) and a transparent linear-trend projection for 2025–2030 to support present–future comparison, the results indicate that higher guarantee coverage is associated with stronger SME loan growth and an initial improvement in observed default performance, conditional on disciplined underwriting and monitoring. The findings translate into design lessons emphasising partial risk sharing, portfolio caps, performance-based pricing, and transparent performance reporting to strengthen additionality and scheme sustainability. Results are interpreted as associations rather than causal estimates.