ABSTRACT
Despite their significant contributions to the gross domestic product (GDP) and employment, small and medium-size enterprises (SMEs) face constraints in accessing finance in Pakistan. To motivate banks to lend to SMEs, the State Bank of Pakistan introduced a “Credit Guarantee Scheme for Small and Rural Enterprises” in 2010. However, the response was initially somewhat muted, which may arguably have been due to factors like the design of the offer, its governance structure, or the reluctance of financial institutions to engage with SMEs in general and the credit guarantee scheme in particular, or a combination thereof. In this chapter, we focus on a discussion of how inadequate marketing diluted the scheme’s impact. Specifically, several commercial banks could not tailor elements of their marketing mix - including people, products, processes, and promotions - to take full advantage of the scheme. That said, periodic revisions of the scheme helped address some of its shortcomings, and the expectation is that other indicators will improve due to the recent changes in the scheme’s parameters. Our key finding is that policy makers can maximize the impact of a credit guarantee scheme by paying attention to the marketing mix, which sets up participating financial institutions for success (or failure) during the implementation phase. In addition, the scheme’s structure should be a long-term intervention, and its intended duration should be clear at the outset so that the participating financial institutions are motivated to design and roll out specialized products that tap the full potential of credit guarantees. Furthermore, the scheme’s originators should be prepared to develop the entire ecosystem, which may include some initial hand-holding of SMEs.
