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SMEs, public credit guarantees and mutual guarantee institutions

Lorenzo Gai (Department of Economics and Management, University of Florence, Florence, Italy)
Federica Ielasi (Department of Economics and Management, University of Florence, Florence, Italy)
Monica Rossolini (School of Economics and Statistics, University of Milano-Bicocca, Milan, Italy)

Journal of Small Business and Enterprise Development

ISSN: 1462-6004

Article publication date: 21 November 2016




The purpose of this paper is to focus on public guarantees granted to micro-, small- and medium-sized enterprises (SMEs) by the Italian national credit guarantee programme (Fondo Centrale di Garanzia – Central Guarantee Fund – (CGF)). The CGF provides a direct guarantee to banks granting loans or a counter-guarantee to mutual guarantee institutions (MGIs) acting as first-level guarantors. Because the behaviour of MGIs could affect the default risk of counter-guaranteed loans, it is vital to investigate their operating and structural characteristics in order to identify an optimal design for public credit guarantee schemes (PCGSs).


Using regression models, the paper analyses the determinants of default for 33,229 SME loans guaranteed by an MGI and counter-guaranteed by the Italian CGF. The dependent variable is the ex-post default risk of SMEs’ counter-guaranteed loans in the 2010-2011 period. The explanatory variables are certain characteristics of the MGI.


The authors demonstrate that increases in an MGI’s leverage and the size of the counter-guaranteed portfolios increase the default risk. When the counter-guaranteed portfolio increases, MGIs are more risk taking but take less risk than when local and specialized MGIs are at play. Finally, direct public aid is relevant.

Practical implications

An appropriate design of the PCGS becomes crucial to controlling moral hazard in financial institutions and ensuring the financial sustainability of public intervention in favour of SMEs.


The paper evaluates an original and confidential firm-level data set that is not available in public documents or supervisory board statistics but is collected directly from the MGIs that participated in this study.



The authors would like to thank the organizers and all the participants at the European Central Bank workshop on the “SMEs’ access to finance: the role of financial and non-financial intermediaries and capital markets”. In particular, the authors are grateful to Paolo Finaldi Russo, Helmut Kraemer-Eis and Serafeim Tsoukas for helpful comments and suggestions.


Gai, L., Ielasi, F. and Rossolini, M. (2016), "SMEs, public credit guarantees and mutual guarantee institutions", Journal of Small Business and Enterprise Development, Vol. 23 No. 4, pp. 1208-1228.



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