The Covid-19 pandemic has reduced the funding of many firms, especially small and medium enterprises (SMEs). In response, a number of countries in both Western Europe and the EBRD regions have scaled up state credit guarantee schemes to mitigate this urgent liquidity problem and stimulate an economic recovery. This note highlights the design and implementation aspects of these schemes. It suggests that this instrument, if well designed and implemented, can be an efficient crisis response mechanism, as it relies on the banking sector to channel financing to firms, while safeguarding the soundness of the banking sector by partly assuming the risk of on-lending.
