The World Bank Group has placed job creation at the center of its strategy, recognizing small and medium enterprises (SMEs) as vital drivers of employment in emerging markets. However, a multi-trillion-dollar credit gap continues to constrain these firms, which are expected to absorb 1.2 billion young people entering the workforce over the next decade. Credit guarantee schemes have become a common policy tool, existing in more than half of developing countries, yet systematic evidence on their effectiveness has been limited until now.
A new global survey of 108 institutions across 74 countries reveals that these programs are larger than often assumed, averaging 2 percent of national economic output in 2024. East Asia and the Pacific stand out with guarantees exceeding 5 percent of GDP, while Sub-Saharan Africa records just 0.1 percent despite its pressing need for SME finance. On average, guarantees cover about 11 percent of SME loans, raising questions about risk-sharing and whether these schemes truly expand access to credit.
Evidence shows that guaranteed firms in high-income countries grow faster and create jobs, but only when guarantees reach businesses that banks would otherwise reject. Many schemes, however, appear to grow alongside stronger banking systems rather than opening doors for underserved firms. This undermines their potential to deliver meaningful employment gains.
The survey highlights that the strongest predictor of program size is the depth of a country’s financial system, not the design of the scheme. While governance and leverage matter for efficiency and risk management, many programs remain underused or overly cautious. Schemes funded solely by government budgets often lack incentives to manage risk actively, while those backed by multilateral institutions or retained earnings are more disciplined in their operations.
A key concern is that many schemes lack data on whether they are truly reaching excluded businesses. Guarantees that simply back loans banks would have made anyway generate no additional jobs, instead shifting risk to governments at a fiscal cost. This underscores the need for sharper targeting and better monitoring.
Credit guarantee schemes sit at the intersection of the World Bank Group’s jobs agenda, combining efforts to build enabling business environments and mobilize private capital. When well-designed, they can direct scarce public resources toward SMEs that banks overlook. When poorly managed, they substitute fiscal risk for credit risk without boosting employment or productivity.
The report identifies four priorities for governments and partners: aligning program size with the depth of local credit markets, enforcing strong governance standards, focusing on clearly defined gaps with explicit job creation targets, and investing in data systems to measure impact. Together, these steps can ensure guarantee schemes deliver sustainable support to SMEs and contribute meaningfully to job creation in developing economies.
