stable finance. One efficient way to promote SME financing is through credit guarantee schemes, where the government … analysis of factors that determine optimal credit guarantee ratio. The ratio should be able to fulfill the government's goal of … results show that three categories of factors can determine the optimal credit guarantee ratio: (i) government policy, (ii …

We establish that a monopoly bank never uses collateral as a screening device. A pooling equilibrium always exists in … which all borrowers pay the same interest rate and put zero collateral. Absence of screening leads to socially inefficient … lending in the sense that some socially productive firms are denied credit due to excessively high interest rate. …