Firm-Level Impact of Credit Guarantees: Evidence from Turkish Credit Guarantee Fund

Firm-Level Impact of Credit Guarantees: Evidence from Turkish Credit Guarantee Fund

21/10

Ufuk Akçiğit, Ünal Seven, İbrahim Yarba, Fatih Yılmaz

English

April 2021

This paper studies the firm-level short-term impact of one of the largest credit guarantee programs in the world recently implemented in Turkey. Using a combination of firm-level administrative databases of tax registry, credit registry, and the credit guarantee fund (CGF) registry, we analyze the characteristics of the CGF supported firms and the program’s impact on their employment, sales, and credit default probability. We find that the CGF program on average had a positive impact on the performance of treated firms, where the CGF supported firms were able to increase their employment by 17 percent, sales by 70 percent and reduce their credit default probability by 0.6 percentage point relative to their matched-control group. Evaluating our estimation results at variable averages shows that every 1 million TL credit generated via the CGF program preserved 2.7 extra employment and stimulated about 3 million TL in sales. We also observe an overall increase in firm indebtedness, which may adversely affect firms’ financial health in the long-run. Moreover, our findings reveal that the program impact is heterogeneous across firm size and sector groups. We use this heterogeneity to perform counter-factual policy exercises indicating that redesigning the program with such priorities can bring substantial efficiency gains.

Credit guarantee schemes, SME lending, Impact analysis

G21; G3; L25