Bilateral and multilateral development agencies use guarantees in order to reduce investors’ exposure to risks and to attract private capital to developing countries. A guarantee is a legally-binding agreement under which the guarantor agrees to pay part or all of the amount due on a loan, or other financial instrument, in the event of non-payment. Across the developing world, there are places where having access to the right guarantee product will enable investments that would otherwise have been blocked—where the returns are there, but the risks involved simply exceed market tolerances, or where regulations limit investors’ ability to bear risk. These opportunities are waiting to be seized by bilateral development agencies and development finance institutions (DFIs), who have the flexibility to innovate. Read more…

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