Case Study Details - Playbook of Solutions

Description

Credit guarantees are credit enhancement mechanisms which guarantee debt instruments such as loans or bonds. They’re an irrevocable promise from the guarantor to pay the principal and/or interest up to a pre-determined amount, which is typically expressed as a percentage of principal. A credit guarantee is “partial” when it covers less than 100% of the debt or “full” if they provide a 100% coverage. A reinstatement provision allows the guarantee to be drawn to meet debt service payments in case the borrower defaults.

Benefits

Credit guarantees improve access to financing for high-risk projects as they facilitate market access for borrowers, encourage long-term funding, and allow for better financing terms. Additionally, they help expand and enhance the financial sector in developing countries, contributing to overall economic development and stability. Overall, these instruments facilitate complex development projects as they help mobilize private financing in high-risk environments. They especially are useful to mitigate the political and counterparty risks which are difficult for private investors to manage and price.

Case Study

World Bank Group’s new portfolio guarantee platform

In 2024, the World Bank Group launched a new guarantee platform to streamline its guarantee business and enhance its impact on economic and sustainable development. This initiative aimed to simplify and accelerate access to loan and investment guarantees, thereby attracting private-sector investments and commercial financing to developing countries. The platform would consolidate guarantee products from the World Bank, International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA), and centralize operations at MIGA for greater efficiency and client convenience.

This one-stop platform would replace the disparate processes and standards currently followed by the different institutions, enabling clients to interact with a single team instead of multiple contacts. This streamlined approach is expected to triple the World Bank Group’s guarantee business to over USD 20 billion by 2030. The initiative would particularly focus on mobilizing private sector capital to fill the substantial funding gap in emerging markets and developing economies (EMDEs), including renewable energy projects. The guarantees would be available for both projects and portfolios of projects, and public and private sector risks.

Additional Sources

Credit Guarantees