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“…The basic principles of guarantee include: to influence and direct the flow of credit to any desired businesses or sector; it does not utilize funds to be given out as loans but guarantee funds are used to back loans granted by lending institutions; funds available to build up reserves to back issuance of new guarantees and; lenders are expected to shoulder risk responsibility by exercising due diligence in loans guaranteed via "risk sharing" principle. According to Nitsch and Kramer (2010), in any credit guarantee system the basic loan relationship between the borrower and the bank is extended through a third party, the guarantor. Whereas the financing (provision of funds or liquidity) remains with the bank, the credit (the trust, confidence and risk of default) is shared between the bank and the guarantor.…”
Section: Methodsmentioning
confidence: 99%
“…The basic principles of guarantee include: to influence and direct the flow of credit to any desired businesses or sector; it does not utilize funds to be given out as loans but guarantee funds are used to back loans granted by lending institutions; funds available to build up reserves to back issuance of new guarantees and; lenders are expected to shoulder risk responsibility by exercising due diligence in loans guaranteed via "risk sharing" principle. According to Nitsch and Kramer (2010), in any credit guarantee system the basic loan relationship between the borrower and the bank is extended through a third party, the guarantor. Whereas the financing (provision of funds or liquidity) remains with the bank, the credit (the trust, confidence and risk of default) is shared between the bank and the guarantor.…”
Section: Methodsmentioning
confidence: 99%
“…However, due to counter guarantees, guarantee banks have to bear only a part of the defaults in context of their guarantees. Between 65% and 80% of the default risk of the guarantee bank is covered by the federal government and the principal federal state (Schmidt and van Elkan, 2006; Nitsch and Kramer, 2010). This illustrates the high governmental involvement in the German Credit Guarantee Scheme.…”
Section: Introductionmentioning
confidence: 99%