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The lack of long-term financing, the low rate of return, the existence of various risks, and the lack of capacity of market players are major challenges for the development of green energy projects. This paper aimed to highlight the challenges of green financing and investment in renewable energy projects and to provide practical solutions for filling the green financing gap. Practical solutions include increasing the role of public financial institutions and non-banking financial institutions (pension funds and insurance companies) in long-term green investments, utilizing the spillover tax to increase the rate of return of green projects, developing green credit guarantee schemes to reduce the credit risk, establishing community-based trust funds, and addressing green investment risks via financial and policy de-risking. The paper also provides a practical example of the implementation of the proposed tools.

State-backed credit guarantee schemes aim to close the gap in the financing of small enterprises or startups caused by lacking collateral and high information asymmetry. The present study discusses the effectiveness of German guarantee banks compared to credit guarantee schemes in other countries and quantifies their economic and fiscal net benefits in the new federal states of Germany, where economic development is still lacking behind. Using data of five guarantee banks and from enterprise and bank surveys, we measure finance and project additionality of loan and equity guarantees provided over the period 1991–2015. Cost-benefit analyses show that the economic benefits of the guarantee banks are considerable because of increased production and employment, while the economic costs are negligible. The real GDP increases by about 1.2 euro per euro guarantee each year. For the years 2008–2014, we find net fiscal gains of several hundred million euros in each federal state.

PurposeTo run a job guarantee public policy scheme, it is important to know the aspiration level or the reference point of labor, and accordingly, the labor hour and the wage sequence are to be prepared. The existing job guarantee schemes consider the same wage rates for all types of jobs. As a result, it is to identify the reference point. The present work aims to propose a job guarantee scheme where different types of jobs have different wage rates. The paper explains the choice problem between labor and leisure at different wage rates and proposes complete computational tools to be incorporated into the job guarantee schemes. The paper also gives a mechanism to prepare the list of jobs and corresponding wage rates by maintaining a balance between labor and leisure, where productive activities measure labor hours and labor welfare measures leisure hours. Lastly, the paper provides the analytical tools to interpret the ex-post data of the job guarantee public policy schemes.Design/methodology/approachThe paper has been written based on the Coordination Game and its Welfare Implications in the job guarantee public policy schemes.FindingsThe present paper gives an initial work to measure the choice between labor and leisure for the different wage rates practically. This will help in getting the equilibrium strategies, namely, the combination of the labor hour and the wage rate between the policymaker and the labor. This method will help to implement the job guarantee schemes. For example, to run successfully the Basic Income policy, the basic income calculation should give due care; otherwise, there will be a downward trend in the basic income and the welfare of labor will be reduced, because the labor would have to supply excess labor to meet the target income.Originality/valueThis paper derives theories and explains how the equilibrium in this coordination game can be achieved. The paper explains how the policy of the job guarantee schemes can be practiced practically. In the MGNREGA scheme, the public institution declares different categories of jobs with different wage rates. The categories have been classified with respect to the hours required to complete the job. Therefore, the public institution declares different lists or a sequence of pairs of labor hours and wage rates. Moreover, the list is stochastic, because the list can be changed by the inclusion of an offer from the market as well. The labor has to select from the list. The challenge on the part of the public institution is to prepare the list in such a way so that the inclusion of the market offers will not distort the equilibrium of the coordination game. An important method has been proposed here to analyze the ex-post data of job offers so that the preparation of the future sequence of the job offers can be prepared with due care. One objective of the policymaker here is to make a list of job offers in such a way so that the labor supply will be converging to a point and that will not deviate if the wage rate increases further. This objective will make a balance of the distribution of funds between the existing registered labor and the new entrants into the job guarantee schemes.

The study investigates the role of market-based finance and public financial support in aiding scaling up by European SMEs. First, we analyse the impact of public loan guarantee schemes on firms’ access to market-based instruments. Second, we study whether firms’ access to market-based finance and the use of public grants boost a firm’s (ex post) growth. The analysis is based on a unique and original dataset of about 31,000 Eurozone firms in the 2009–2020 period. The study finds that firms’ access to market-based finance is (i) driven positively by the previous use of public financial support schemes and (ii) has a positive effect on subsequent growth. In particular, SMEs display relatively higher growth in fixed assets, while for large firms, growth is mainly driven by current assets. Moreover, SME issuers using public grants achieve significantly stronger growth than comparable firms.

Purpose – The purpose of this paper is to explore the full potential of an effective deposit insurance system. The current financial crisis in Europe has arguably casted fresh doubt on the role and need for deposit insurance. In this regard, the deposit insurance system’s rationale is a key starting issue in order to fully understand its design and role within a financial safety net system. Design/methodology/approach – Using the UK regulatory regime as the main reference point, the deposit insurance system’s objectives are divided into two broad categories: depositor protection and financial stability. Findings – It is argued that a deposit insurance system could only be effective if designed to perform key regulatory objectives. Otherwise, authorities will keep resorting to other rescue measures, as this system will never be well equipped to respond to a bank failure. Practical implications – Notwithstanding recent regulatory reforms, there is still a lack of clear objectives and, thus, a clear profile for the Financial Services Compensation Scheme, as the UK deposit compensation scheme. In light of systemic risk and increased demands on prudential banking regulation, the UK deposit insurance system should be reformed to perform significant regulatory objectives. Social implications – The further reform of the UK deposit insurance will enhance depositor protection and financial stability, especially amid the euro-crisis. Originality/value – An effective reform of deposit insurance requires a clear role-setting for deposit insurance. To this end, this paper offers a comprehensive analysis of all regulatory objectives that the post-crisis UK deposit insurance system should serve.

The advent of COVID-19 portended a dire liquidity crunch for small firms as traditional external funding sources were severely curtailed. Defying expectations, initial equity crowdfunding (ECF) campaigns not only withstood the pandemic’s onslaught but also saw unprecedented growth in funding volume, investor participation and overfunding. The upshot was that external equity, the traditional funding of last resort, became the first choice. Increased ECF funding especially for seed ventures are likely linked to government-backed loan guarantee schemes that acted as a quality signal for investors. The paper highlights the unanticipated positive synergies between public support mechanisms and private equity dynamics where equity was funding of first choice for many small firms seeking external funding. These developments underscore ECF’s central role in digitally channelling equity capital to small firms during a period of heightened economic uncertainty. Plain English Summary During the pandemic, when physical meetings were restricted, UK equity crowdfunding (ECF) platforms became a crucial lifeline for start-ups, enabling equity financing without face-to-face interactions with investors like business angels. ECF offerings flourished with funding amounts increasing by 15% and investor numbers by 32%. Their success was due to digital due diligence mechanisms that effectively identified high-quality ventures. Moreover, government loan guarantee schemes, including those with full repayment guarantees, provided significant support. Initially, there were concerns about these schemes negatively affecting other finance sources. However, they proved to be a financial lifeline for small firms, enhancing their viability and improving their chances of raising equity capital through Crowdcube. As a result, innovative seed firms thrived during COVID-19 as government aid in the pandemic's first year guaranteed their survival. The main implication is that ECF – a very risky source of finance – flourished during COVID-19 through digital flexibility and government support.

This paper estimates the impact of public guarantees on crisis predictive indicators among small and mid-size enterprises (SMEs). We use a confidential database provided by the Italian Ministry of Economic Development on the universe of guarantees granted by the Central Guarantee Fund. We apply difference-in-difference regressions and propensity-score matching estimators to a sample of approximately 40,000 SMEs over the 2010–2018 period. We find that obtaining a public guarantee improves profitability both in the short- and medium-term. On the other hand, SMEs’ financial health worsens in the short run, but financial burdens are alleviated 2 years after the issuance of a guarantee. The economic and financial effects of government-backed loans are amplified for micro-sized firms, companies operating in the service sector and direct guarantees. Our results can thus support public authorities in designing credit guarantee schemes capable of preventing SMEs’ zombification and protecting them from the risk of debt overhang.Plain English SummaryAccess to public credit guarantee schemes negatively impact SMEs’ financial equilibrium, but their recovery occurs 2 years after guarantee issue. How does one select eligible firms to prevent zombification? Using a confidential dataset provided by the Italian Ministry of Economic Development on guarantees issued by the Central Guarantee Fund, we investigate this topic with an unprecedented level of salience. Our findings reveal the need for cautious interventions on firms in financial distress and for the introduction of stress tests to select beneficiaries. Our results show that specific guarantee lines could be applied for direct guarantees granted to micro-sized enterprises and companies operating in the service sector to maximize the additionality of public resources. This study has practical, policy and societal implications, guiding SMEs in their assessment of the overall medium-term effects of guarantees and policy-makers in their rethinking of guarantee schemes to resolve trade-offs between effectiveness and sustainability.

Access to finance has been a key constraint for Indonesia’s micro, small and medium enterprises (MSMEs) that lack tangible assets to be used as collateral. Consequently, credit guarantee schemes (CGSs) are important instruments to meet MSMEs’ financial needs. This paper examines the effectiveness of the KUR (community business credit), a partial public CGS in Indonesia, by comparing it with similar schemes in other ASEAN member states (AMS). The findings suggest that the KUR programme, despite its limited coverage, has been quite effective throughout the country. Some of the critical factors behind its success include: wide dissemination of the programme; simplicity of the application procedure; full participation and support from banks; and strong coordination between all stakeholders.

This research seeks to identify the factors influencing the investment potential of SMEs following their receipt of government-guaranteed loans. To this end, an empirical methodology based on the statistical analysis of data collected from a representative sample of Moroccan companies was employed. This sample of 335 SMEs that had benefited from loans with government guarantees was selected at random to ensure its relevance to the population of SMEs in Morocco. The methodological approach is based on a regression analysis using the robust least squares (RLS) method. Firm profitability is positively related to higher investment, suggesting that government guarantees should encourage investment by profitable SMEs. Liquidity, repayment capacity and indebtedness at the time of applying for finance do not appear to influence investment. These elements can be improved after financing, which indicates that government guarantees should not penalize SMEs in difficulty. Decision-making maturity has a negative effect on investment, suggesting that young companies and entrepreneurs tend to invest more. A negative correlation is observed between company size and investment, which suggests that government guarantees should be geared towards small SMEs and young companies and entrepreneurs. Finally, managers with a large share of capital invest more, leading us to believe that government guarantees should favor this type of SME.

Abstract The concept of the ‘discouraged’ borrower is well documented. In this paper, we consider whether smaller firms in the UK who have been previously rejected for bank loans have been scarred by the experience so badly that even in the presence of two exceptionally generous Covid-19 loan guarantee schemes, they still refuse to make an application. Furthermore, we also consider what happens when they do. As banks have either zero or minimal loss exposure, do they still maintain their normal strict lending protocols or do they relax their standards to fulfil the governments’ objective of supporting struggling businesses through the crisis? Our findings show that 72% of previously rejected borrowers are reluctant to request loans. We find some evidence that previously scarred firms faced such severe liquidity problems that they relaxed their distrust of banks during the Covid-19 crisis. However, their share of the government-guaranteed loan portfolio was slightly lower suggesting that banks were treating each new loan application on its merits.Plain English SummaryThe Covid-19 crisis hit smaller businesses so hard that even previously rejected borrowers were forced to apply for loans to keep them afloat. Previous loan rejections have not discouraged small businesses in the UK in applying for Covid-19 government-guaranteed loans. Banks have used the loan guarantee schemes to continue to supply loans to small business during the pandemic. Our paper analyses the important phenomenon of borrower scarring and discouragement, when potential debtors are self-excluded from the lending market because they have previous rejections or expect a negative bank response. We consider around 45,000 UK small businesses from 2018 to 2020. On the demand side, we find that the economic shock for small businesses during the pandemic dissipates the scarring effect. Specifically, we find that micro and small businesses had the highest loan demand in the first two quarters of the pandemic (from March 2020). On the supply side, we show that scarred borrowers were not routed onto Covid-19 government-guaranteed loan schemes. These findings show the importance of government-backed lending schemes for small businesses during crisis period.