Side Effects Of Bank Guarantees
View PDF | Print View
by: WadeHenderson
Total views: 32
Word Count: 396
Users of bank guarantees feel generally safe because of the fact that guarantee funds will cover any unpaid invoices. This is often criticized because this fact will not motivate people to meet their commitments.
Another argument against bank guarantees is related to their source of management. When the guarantee system is managed by public or governmental institutions, it is argued that they tend to be unnecessary and ineffective.
Many bank guarantee systems are based on the principle of joint guarantee. This type of warranty does not cover management costs. The range of security products must be more open and adapted to each situation.
Recently many studies have been conducted in order to evaluate the effectiveness of bank guarantees. However these studies commonly face the challenges of lack of information or the difficulty to find it. The main finding of these studies is the importance of collateral to reduce financial risk.
In general we can say that access to credit for small and medium size businesses is difficult. In a situation when the market is under recession or a period of slow growth, it is harder for small businesses to find sources of credit.
There is a need to improve the design of projects in order to breach the gap between micro-financing needs and the capacity of financial institutions to provide credit. There is a need to increase the number of micro-finance users in order to create an argument and also increase the support to micro finance institutions. Bank guarantees have been proven to show improvements to this respect.
In countries where the government subsidizes credits to small businesses, bank guarantees have not been successful. The reason is that sources of funding coming from the government create dependency.
There is more than one type of bank guarantees. The criteria that some guarantee systems follow is the one that gives priorities to loans with interest rates dictated by the market. The financial ability to pay the loan and keep certain liquidity is also highly considered in order to reduce risk.
There are arguments regarding the use of subsidies in bank guarantees. When subsidies are applies directly to bank guarantees are more productive in the long run than those applied to interest rates. Subsidizing credit reduces the motivation to save.
About the Author
Wade Henderson - recognized Professional - 15 yrs in the Business Finance Field - strong reputation for getting the deal done. IMMFinancial.com SBLC L.C. Grab a totally unique version of this article from the Uber Article Directory
HTML Code For Copy & Paste
The following code can be copied and pasted into your web page to ensure all links are properly maintained.
Rating: Not yet rated