This paper examines the impact of mutual guarantee institutions (MGIs) on small business finance, particularly in Italy. MGIs are organizations where members contribute to a guarantee fund, which serves as collateral for loans granted to the members. The authors find that small firms affiliated with MGIs pay lower interest rates compared to similar firms not affiliated with MGIs, even when the loans are not backed by mutual guarantees. This suggests that MGIs are better at screening and monitoring borrowers compared to banks, which benefits banks by reducing the perceived credit risk of their clients. The study also explores the effects of MGI characteristics, such as size and public funding, on loan interest rates. Larger MGIs and those with more public funding tend to have higher interest rates, indicating that the benefits of peer monitoring may be offset by moral hazard issues. The findings support the role of MGIs in improving access to credit for small businesses but caution against policies that could exacerbate moral hazard problems.This paper examines the impact of mutual guarantee institutions (MGIs) on small business finance, particularly in Italy. MGIs are organizations where members contribute to a guarantee fund, which serves as collateral for loans granted to the members. The authors find that small firms affiliated with MGIs pay lower interest rates compared to similar firms not affiliated with MGIs, even when the loans are not backed by mutual guarantees. This suggests that MGIs are better at screening and monitoring borrowers compared to banks, which benefits banks by reducing the perceived credit risk of their clients. The study also explores the effects of MGI characteristics, such as size and public funding, on loan interest rates. Larger MGIs and those with more public funding tend to have higher interest rates, indicating that the benefits of peer monitoring may be offset by moral hazard issues. The findings support the role of MGIs in improving access to credit for small businesses but caution against policies that could exacerbate moral hazard problems.