Guarantees

The document defines guarantees as instruments that transfer risk from transaction parties to third parties, such as multilateral development banks or governments, to lower borrowing costs and crowd in private capital. It details the types of risks covered—commercial, political, and market—and identifies key sectors for application, including energy, climate-resilient infrastructure, agriculture, and green manufacturing. The guide outlines the internal and regulatory capacities governments need to act as either beneficiaries or guarantors, categorizes financial market readiness into shallow, emerging, and mature markets, and discusses challenges such as time horizon misalignments and a lack of bankable project pipelines.

• Guarantees enable borrowers to access capital at or near the guarantor's credit rating, which can significantly reduce borrowing costs and the risk premium demanded by lenders, especially when the guarantor has a high rating like AAA.
• Capital-intensive projects typically exceeding USD 10 million are well-suited for guarantees. These are frequently used in energy (renewable energy, solar, and mini-grids), climate-resilient infrastructure, agriculture (climate-smart value chains), and green manufacturing.
• When a government serves as a guarantor for domestic borrowing, it creates a contingent liability that reduces future fiscal space for borrowing and increases the sovereign's overall exposure to fiscal risk.
• According to the World Bank, fewer than 40% of sovereign governments possess the minimum requirements necessary to manage on-lending and loan guarantees.
• 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 risk management and liquidity).
• A significant barrier to the use of guarantees is the misalignment of time horizons: climate projects often require 25 to 30 years of capital, while debt-equity financing typically involves shorter repayment periods of 8 to 18 years.
• Specific examples of guarantee implementation include a collaboration between Sida and the Rwandan Development Bank 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} }