Dissertation am Fachbereich Wirtschaftswissenschaft der Freien Universität Berlin Credit Guarantee Schemes for Small Businesses: between Euphoria and Scepticism Concepts and Experiences with Institutional Structures in Europe and Latin America – with Case Illustrations from Germany and Brazil Inaugural-Dissertation zur Erlangung des akademischen Grades eines Doktors der Wirtschaftswissenschaft des Fachbereichs Wirtschaftswissenschaft der Freien Universität Berlin Vorgelegt von Diplom-Volkswirt Dirk Kramer 2012 ii Vorblatt Erstgutachter: Prof. em. Dr. Manfred Nitsch Zweitgutachterin: Prof. Dr. Barbara Fritz Tag der Disputation: 02.11.2012 iii iv Für meine Familie v vi The author has been working for the Federal Financial Supervisory Authority (Bunde- sanstalt für Finanzdienstleistungsaufsicht; BaFin) since February 2012. The thesis was submitted before commencement of employment at BaFin. Neverthe- less, it is important to emphasise that this research represents the opinion of the au- thor, and not the opinion of BaFin. vii viii ACKNOWLEDGMENTS First, I want to thank my family for the encouragement through the whole period of the PhD project. The research and finalisation of this thesis would not have been pos- sible without their help. Moreover, I want to thank all my friends for the backing dur- ing the years – beyond academic comments and suggestions. I want to thank my advisors for enabling the research and their continuous effort in advising. Prof. em. Dr. Manfred Nitsch supported the research, not only in the official consultation hours but during several events – such as the regular meeting with other researchers at the institute, the “Ökonomenkaffee”, participations in conferences, the field research in Brazil and Germany, and within the drafting process of publica- tions and presentations as co-author. Prof. Dr. Barbara Fritz supported the research from the beginning on, and provided important and useful comments and sugges- tions – especially within the Colloquium. I want to thank also all participants of the “Ökonomenkaffee” and the Colloquium at the Latin American Institute (University Center of the Freie Universität Berlin). Not only comments on and suggestions to my research were a valuable contribution. As important were the discussions about their research projects, about experiences with the methods they used, and about diverse other contemporary issues. This holds es- pecially for Dr. Carlos Domene, Dr. Christian Ambrosius, Dr. Christiane Ströh de Martínez, Felix Kaup, Dr. Laurissa Mühlich, Phillip Temme, Dr. Sascha Müller, Thiago de Castro Menezes and Dr. Ursula Stiegler. I want to thank in particular Prof. Dr. Christoph Trebesch and Dr. Katja Kirchstein for the intensive discussions, suggestions and especially the cross-reading during the drafting period of the thesis. Moreover, I want to thank Kevin Graham PhD for cross reading the drafts of the thesis in his mother tongue. I want to thank all the interviewees, and those who provided for the contacts. Special acknowledgement is for Dr. Carlos Alberto dos Santos, Roberto Marinho Figueroa Zica, Alexandre Guerra de Araújo and the entire UASF team of SEBRAE (National unit and units of Minas Gerais and São Paulo), Dr. Antonio Carraro (ABDE), Ricardo Antônio Cavinato (AGC), Hernan Marin (CASFOG), the members of the REGAR net- work, and the German Association of Guarantee Banks (VDB) as well as the director- ate and the staff members of the Guarantee Banks in Berlin and Brandenburg. ix x TABLE OF CONTENTS I 1 INTRODUCTION ................................................................................................................................. 1 1.1 THE RESEARCH QUESTION AND CASE SELECTION ........................................................................................... 3 1.2 STRUCTURE OF THE THESIS, METHODS AND LITERATURE ................................................................................ 5 2 ARRANGEMENTS OF CREDIT GUARANTEE SCHEMES FROM A THEORETICAL PERSPECTIVE ............... 9 2.1 CREDIT RATIONING AND GUARANTEEING, ESPECIALLY FOR SMALL BUSINESSES .................................................... 9 2.2 THE BASIC TRIANGULAR RELATIONSHIP ................................................................................................... 26 2.3 EXTENSION OF THE BASIC TRIANGULAR RELATIONSHIP ................................................................................ 40 2.4 HYPOTHESIS: NO MAGIC FORMULA FOR AN OPTIMAL CREDIT GUARANTEE SCHEME ........................................... 59 2.5 BASIC MODELS OF CREDIT GUARANTEE SCHEMES AND THEIR DIFFERENTIATION ................................................. 60 3 EMPIRICAL EVIDENCE I: SURVEYS .................................................................................................... 75 3.1 WORLDWIDE OVERVIEW AND DIGRESSION TO NORTH AMERICA AND ASIA ...................................................... 75 3.2 EVIDENCE FROM EUROPE AND LATIN AMERICA: AN OVERVIEW ..................................................................... 93 4 EMPIRICAL EVIDENCE II: CASE STUDIES ......................................................................................... 143 4.1 CASE 1: GERMAN GUARANTEE BANKS .................................................................................................. 143 4.2 CASE 2: BRAZILIAN CREDIT GUARANTEE SOCIETIES .................................................................................. 256 4.3 DIFFERENCES AND EQUIVALENCES BETWEEN THE GERMAN AND BRAZILIAN CASES .......................................... 287 5 CONCLUSIONS ............................................................................................................................... 289 5.1 CREDIT GUARANTEE SCHEMES, THEORY AND CENTRAL FINDINGS ................................................................. 289 5.2 APPROACHES TO DIFFERENTIATE CREDIT GUARANTEE SCHEMES ................................................................... 293 5.3 LESSONS LEARNED: TRADEOFFS AND PITFALLS IN THE INSTITUTIONAL SETUP .................................................. 301 BIBLIOGRAPHY ................................................................................................................................. 305 APPENDIX ........................................................................................................................................ 329 APPENDIX 1 LIST OF INTERVIEWS AND DISCUSSIONS ...................................................................................... 329 APPENDIX 2 LIST OF CONFERENCES ............................................................................................................ 333 APPENDIX 3 LIST OF VISITS ....................................................................................................................... 334 APPENDIX 4 LIST OF RECEIVED EMAILS ........................................................................................................ 335 APPENDIX 5 LIST OF SURVEY PARTNERS ....................................................................................................... 336 APPENDIX 6 QUESTIONNAIRE OF SURVEY ..................................................................................................... 337 APPENDIX 7 ANNUAL EXCHANGE RATES WITH THE EURO ................................................................................ 344 WEITERE ANHÄNGE LAUT PRÜFUNGSORDNUNG ............................................................................. 345 ZUSAMMENFASSUNG DER ARBEIT AUF DEUTSCH ........................................................................................... 345 TABELLARISCHER LEBENSLAUF (KURZFORM) ................................................................................................. 361 xi TABLE OF CONTENTS II 1 INTRODUCTION ................................................................................................................................. 1 1.1 THE RESEARCH QUESTION AND CASE SELECTION ........................................................................................... 3 1.2 STRUCTURE OF THE THESIS, METHODS AND LITERATURE ................................................................................ 5 2 ARRANGEMENTS OF CREDIT GUARANTEE SCHEMES FROM A THEORETICAL PERSPECTIVE ............... 9 2.1 CREDIT RATIONING AND GUARANTEEING, ESPECIALLY FOR SMALL BUSINESSES .................................................... 9 2.1.1 Problems in finance and the commercial approach to provide financial services .................... 9 2.1.2 Basic ideas and approaches to analyse credit guarantee schemes ........................................ 13 2.1.3 Stocks and flows of guaranteeing institutions ........................................................................ 18 2.1.3.1 Digression: insurance companies and credit derivatives ................................................................. 19 2.1.3.2 Items of financial statements that inform about stocks and flows ................................................. 21 2.2 THE BASIC TRIANGULAR RELATIONSHIP ................................................................................................... 26 2.2.1 Mutual relations between borrower and lender ..................................................................... 29 2.2.2 Mutual relations between borrower and guarantor .............................................................. 34 2.2.3 Mutual relations between guarantor and lender ................................................................... 36 2.3 EXTENSION