Guarantees – a type of “insurance policy” protecting banks and investors from the risks of non-payment – have been a mainstay of financial markets globally for many years. They play an important role in helping the private sector make investments that promote growth and create jobs.
Developmental guarantees are a special category of official guarantees backing projects that promote the development. These guarantees can provide the measure of security needed to bring on board more private risk capital and are a valuable instrument for mobilizing private resources from private companies, banks, individuals, NGOs, self-help groups, or investment funds.
Credit guarantees can be used in a myriad of ways, such as i) backstopping financing for large-scale, multi-year infrastructure projects, ii) lengthening the maturities of loans to small enterprises, iii) refinancing municipal utilities, iv) enabling local banks to enter new markets such as mortgage or microenterprise lending, or v) deepening capital markets by facilitating local-currency bond issues.
Guarantees for development supported a total of $15 billion from private sector actors for investments in the developing world from 2009 to 2011 with volumes doubling from $3 billion to $6 billion. The OECD’s Development Assistance Committee is exploring the scope for a new database that could help the development cooperation community understand where resources are being mobilized by guarantees, what types of guarantee instruments are being used, and whether additional resources are being catalyzed by these flows.