Guarantees

This guide by the Climate Policy Initiative explains the role of guarantees as financial instruments to transfer risk from borrowers or lenders to third parties, such as multilateral development banks or governments. It details the types of risks covered, the impact on borrowing costs, the institutional and regulatory capacities required for effective implementation, and the specific challenges facing the deployment of guarantees for climate-related projects in emerging and mature markets.

• Guarantees transfer various risks—including commercial, political, and market risks (such as currency, equity, and commodity risks)—from transaction parties to external third parties like multilateral development banks, government agencies, or private institutions.
• Guarantees are particularly effective for capital-intensive projects (typically USD 10 million or more) in sectors such as energy (renewable energy and mini-grids), climate-resilient infrastructure, agriculture (climate-smart value chains), and green manufacturing.
• By transferring risk to a guarantor, borrowers can access capital at or near the guarantor's credit rating, which can significantly lower borrowing costs, especially if the guarantor has a high rating like AAA. However, these benefits may be partially offset by guarantee fees or a modest credit rating of the guarantor.
• The World Bank reports that fewer than 40% of sovereign governments possess the minimum requirements to manage on-lending and loan guarantees. Minimum capacity requires the ability to coordinate across ministries, obtain legal authority, and track guarantees as contingent liabilities in fiscal reports.
• Financial market readiness is categorized into three levels: shallow markets (reliant on donor finance with limited bankable projects), emerging markets (nascent credit infrastructure with high perceived risk), and mature markets (well-developed institutions with substantial liquidity).
• Key barriers to the uptake of guarantees include high complexity in reporting, a lack of technical assistance for preparing bankable green projects, and a time horizon mismatch where climate projects require 25-30 years of capital but debt repayment periods are typically only 8-18 years.
• Specific examples of guarantee implementation include a collaboration between Sweden and Rwanda that mobilized over SEK 76 million for solar cell companies, and a PKR 1.04 billion credit enhancement guarantee for a Distributed Solar Financing Facility in Pakistan.

APA

Climate Policy Initiative (n.d.). Guarantees. https://www.climatepolicyinitiative.org/wp-content/uploads/2026/01/Guarantees.pdf

Chicago

Climate Policy Initiative. Guarantees. n.d. https://www.climatepolicyinitiative.org/wp-content/uploads/2026/01/Guarantees.pdf.

Wikipedia

{{cite report |author=Climate Policy Initiative |title=Guarantees |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2026/01/Guarantees.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{climatepolicyinitiativendguarantees, author = {{Climate Policy Initiative}}, title = {{Guarantees}}, institution = {Climate Policy Initiative}, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2026/01/Guarantees.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }