Before discussing their effects, it is important to note that credit guarantees have been used for a long time by governments in the developed and developing world alike. Though their purpose has been
traditionally a different one – trying to expand access to external finance among small businesses without sufficient access to bank finance. With this purposes, policy makers typically face the trade-off between additionality and sustainability, i.e.,
reaching firms that previously did not have access to external funding while at the same time minimising losses that arise from banks calling in guarantees. The track record is a mixed one, with problems ranging from limited take-up over administrative barriers
to lack of limited additionality and unsustainable losses. However, there have also been quite some successful cases, as a growing literature has shown.