ENGLISH ABSTRACT: Small and Medium Enterprises (SMEs) are regarded as core drivers of private sectordevelopment in many countries. By their nature, SMEs encounter enormous problems,ranging from usage of appropriate technology, access to raw materials, lack of skills, etc.However, access to finance is frequently cited as the most prominent problem facing theSMEs. Access to finance is defined as the easiness to access credit from financialinstitutions and the costs associated with accessing credit from such institutions. Thisstudy focuses on credit guarantee schemes as one of financial instruments commonlyused to encourage banks to provide credit to small businesses and first time borrowers.Specifically, we review the performance of the two schemes initiated by the Government ofLesotho through assistance of the donor community. The first scheme (ComprehensiveExport Finance Scheme) was administered by the Central Bank of Lesotho throughLesotho National Development Cooperation between 1988 and 1996. The second scheme(Facility for small-scale financing scheme) was funded by United Nation CapitalDevelopment Fund, United Nations Development Programme and Lesotho Government.The latter was operated by Basotho Enterprise Development Corporation (BEDCO),Women in Business and Lesotho Council of Non Governmental Organisations (NGOs)between 1992 and 1997.We analyse the performance of these schemes in relation to their diversification andoutreach objectives. We also compare these schemes in terms of the design features andoperational issues as per global best practices. Further, some of the factors that affectedeffectiveness of the two schemes under consideration and the overall financialintermediation process in Lesotho are outlined.One of the findings of this study is that generally the two schemes failed to achieve theintended objectives as a result of a number of problems. Apart from the deficiencies of thescheme itself, problems in the business and financial sector affected the performance ofthese schemes.A striking common feature of these schemes is that they concentrated in few sectors. Wealso observed a general negligence by the banks in relation to screening and monitoringas a result of low risk exposure. In retaliation of poor due diligence by the banks, and aresultant high default rate by borrowers, guarantors repudiated claims and this led to theeventual erosion of the credibility of the schemes, and ultimate deterioration of guarantor lenderrelationships.From the findings, we have concluded that the schemes should be designed and beoperated according to global best practices. For example, risk exposure should be sharedin such a way that all the three parties, that is guarantor, lenders and borrowers, areexposed to some degree of risk. At the same time, where defaults occur, we recommend aspeedy processing of claims by the guarantor, and that loan loss recovery activities arecontinued even when claims have been paid.We also make some recommendation in respect of the financial sector and businesssector respectively. For the financial sector the recommendations include theestablishment of credit bureaus and a National Identification System so that financialinstitutions can isolate good clients and price products accordingly. In respect of thebusiness sector, key recommendations include the improvement of basic infrastructure,decentralisation of key support services to the districts, linking smaller entrepreneurs withlarge foreign firms, and increasing vocational and technical training in Lesotho.