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A guarantee transfers specific risks in a loan or investment from the borrower or lender to a third party (e.g., an MDB, a bilateral agency, or a private insurer).

Risks addressed

Applications

• Guarantees enable access to affordable finance by leveraging the guarantor’s higher credit rating.
• They reduce borrowing costs, extend loan tenors, and unlock investment in energy, climate-resilient infrastructure, agriculture, and green manufacturing.
• Governments may act as guarantors to crowd in private capital for national priorities.
• Common forms include partial credit, first-loss, and portfolio guarantees.

Type of instruments and providers

Commercial/development providers

• GuarantCo (PIDG): Partial and full credit guarantees for local-currency infrastructure financing in Africa and Asia.
• Green Guarantee Company (GGC): BBB-rated guarantees for mitigation and adaptation projects (up to 100% credit cover).

Concessional/public providers

• World Bank Group / MIGA: Political and credit risk guarantees for sovereign and private projects.
• Sida: AAA sovereign guarantees for credit risk coverage in ODA countries.
• TCX Facility: Donor-funded guarantee pilot improving the affordability of FX hedging.

Debt sustainability

• Indirect: Reduces borrowing costs by shifting risk to guarantors, improving debt affordability.
• Direct: Creates contingent liabilities for guarantors (e.g., sovereigns), impacting fiscal space and debt sustainability metrics.

Internal capacity requirements

Minimum	Advanced
Legal authority to issue or receive guarantees; Central registry and contingent liability disclosure; Coordination among MoF, SOEs, and financial institutions.	Dedicated Guarantee or Fiscal Risk Units in MoF; Capacity for financial modeling, risk assessment, and pricing; Integration into debt management systems and portfolio planning.

Regulatory capacity requirements

Minimum	Advanced
Legal framework authorizing issuance and acceptance; Classification of guarantees as contingent liabilities; Fiscal limits and approval mechanisms.	Public disclosure in fiscal risk statements; Subnational oversight rules; Contract templates and valuation methodologies.

Pathways to adoption based on financial market readiness

• Shallow: Donor-backed pilots, simplified structures, TA to build pipeline.
• Emerging: Expand FX hedging tools, improve credit infrastructure, integrate guarantees in blended finance.
• Mature: Use for innovation and scaling of sustainable finance; thematic guarantees for adaptation/mitigation.

 Pricing considerations

• Priced based on expected loss and coverage scope.
• Concessional pricing lowers premiums via donor subsidies, increasing affordability.

Average time to deploy

• Typically 9–12 months, depending on project complexity and due diligence requirements.