Bahrain's SME lending platform reports rising volume, and the guarantee is the cause

Bahrain's SME lending platform has reported rising lending volume, and the cause behind the rise is the credit guarantee scheme that absorbs a portion of the default risk on the loans. The guarantee is the cause, and the cause is the one the market designed.

The SME lending gap is a risk problem: the banks will not lend to small businesses at affordable rates because the risk is unpriceable, and the risk is unpriceable because the data and the collateral are thin. The guarantee addresses the risk by absorbing a defined share of the loss, and the absorption changes the bank's calculation on the loans the guarantee covers. The rising volume is the lending that the changed calculation produces, and the production is the guarantee's effect.

The reason the guarantee is the cause is that the lending volume rises when the guarantee's coverage expands, and the relationship is the evidence. A bank that lends under a guarantee lends more than one that does not, and the difference is the lending the guarantee enables. The rising volume is the measure of the difference, and the measure is the validation of the guarantee's design.

The implication is that Bahrain's SME lending market is responding to the structural intervention the guarantee represents, and the response is the lending the market needs. The volume will continue to rise as the guarantee's coverage continues, and the SMEs that receive the loans are the beneficiaries. The guarantee is the cause, the volume is the effect, and the effect is the one the policy was designed to produce.