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BP 14.25 - Guarantees

These policies were prepared for use by World Bank staff and are not necessarily a complete treatment of the subject.
BP 14.25
December, 2005

Note:  BP 14.25 replaces the version dated March 2004.  This document is also based on World Bank-Policy Based Guarantees (R99-53), approved April 20, 1999; Aligning the Charges on IBRD Guarantees and Loans (R2000-1/2), approved December 19, 2000; and Enhancing the Use of World Bank Guarantees as an Operational Tool – A Review of the World Bank Guarantee Program (R2000-215, IDA/R2000-215), approved December 19, 2000. Additional information on guarantees is also available from Mainstreaming of Guarantees as an Operational Tool of the World Bank (R94-145), approved by the Board on September 8, 1994; Use of IBRD Guarantees to Support Private Enclave Projects in IDA-Only Countries (R97-85, IDA/R97-36), approved May 27, 1997; Proposal to Charge Fees for Processing World Bank Guarantees and Other Support to Project Finance Operations (R97-204), approved September 2, 1997; A Proposal for Guarantees in IDA-Only Countries (IDA/R97-135), approved November 20, 1997, with a modification approved January 27, 1998. IDA Guarantees Amendments to Pilot Program (IDA/R2004-0057), approved March 17, 2004. Review of the IDA Guarantees Pilot Program (IDA/SecM2005-0220), approved May 5, 2005; Realigning IDA Guarantee Fees with IDA Credit Charges (IDA/R2005-0233), approved November 28, 2005 Questions should be addressed to the Manager, Project Finance and Guarantees Group,   Infrastructure and Economics Department, Infrastructure Vice Presidency.


1.             Each guarantee is developed in close consultation with the member country, and the country director ensures that each one is consistent with the Bank's Country Assistance Strategy (CAS).


2.             Guarantees for public sector projects and those in support of development policy lending operations are generally proposed by the government; those for private sector projects may be proposed by either the government or the sponsors that are promoting a particular project.  In all cases, the member country's request for the guarantee is a prerequisite for further processing of the guarantee. Bank1 staff advise the member country that it would be required to provide an indemnity to the Bank in respect of the Bank's guarantee.


3.             When a Bank guarantee is proposed, the Region consults with the Project Finance and Guarantees Group (PFG) and with the Legal Vice-Presidency (LEG).2 In addition, when a Bank guarantee is being considered for a private sector project, PFG coordinates with IFC's Corporate Planning Department and MIGA's Operations Department to maximize private financing for the project.


4.             The Region forms a task team that includes Regional staff, representatives of PFG and LEG, and representatives of other Bank departments, as necessary.


5.             The task team informs sponsors, lenders, and the member country government that the project or the program to be supported by the proposed guarantee must comply with all applicable Bank policies, and that the guarantee is subject to management review and Board approval. They explain the structure and level of the Bank's fees for the proposed guarantee.


Project Processing


6.             In guarantee operations, appraisal and negotiations are normally an ongoing process, rather than discrete steps, as in loans.


7.             As early as possible during processing, the task team prepares a Project Information Document (PID). The PID presents the principal elements of the guarantee operation, including its rationale, composition, potential benefits/risks, proposed environmental assessment category, and the key features of the proposed guarantee structure.3 The draft PID is reviewed according to Regional procedures and cleared by LEG. Once the Bank receives the government's request for the guarantee (see paragraph 2), and at least 60 days before the expected date of Board presentation, the task team sends the PID for a Bank guarantee to the Bank's InfoShop.4 However, when a deviation from this time framework is justified on operational grounds, the Regional vice president (RVP), in consultation with LEG and Operations Policy and Country Services (OPCS), may approve the deviation and determine the appropriate timing of disclosure of the PID.


8.             Whenever there is a material change in the guarantee operation, the task team updates the PID and sends it to the InfoShop again.


9.             The borrowing entity (public or private) is responsible for arranging financing (acceptable to the Bank) to be covered by the guarantee, including the currency and market of the borrowing, the terms of lending, and the type of private lending instrument acceptable to the Bank.


10.         For investment projects supported by guarantees, all reports required to comply with applicable safeguard and disclosure policies must be prepared in sufficient time for (a) the Regional environment sector unit to review and comment on the report, and (b) the task team to take the findings into account as part of appraisal. 


11.         The task team, in consultation with the sponsors, the lenders, and the member country government, develops the structure of the proposed Bank guarantee.5 The task team assesses the adequacy of all related aspects—including the project's financial and economic viability, its technical and environmental aspects, and its implementation arrangements6 ---depending as appropriate on any appraisals carried out by IFC or other lenders. The appraisal of a policy based guarantee (PBG) operation is carried out within the framework of the CAS. The appraisal of a PBG assesses the operation's developmental benefits as well as compliance with policy conditionality, and trade-offs among additional private exposure (increased access), guarantee coverage (leverage), and yield (reduced borrowing cost).7 PFG provides coordination with the market and establishes the fees to be charged based on the approved policies.  LEG assesses the adequacy of the legal aspects of the proposed guarantee and related project documents.


12.         All guarantee proposals are subject to (a) a concept review, and (b) a corporate review.8 The concept and corporate review meetings include staff from PFG and LEG, and from SFR/FRM, IFC, and MIGA as applicable.9 The corporate review takes place after the concept review has been carried out.  If the terms of the guarantee as finally negotiated deviate significantly from the terms authorized by the corporate review, or if substantive issues arise that require corporate consideration, the proposed operation is resubmitted for a corporate review.




13.         In the Project Concept Note (PCN)10 and Project Appraisal Document (PAD), the task team provides an overview of the investment project and describes the nature and structure of the Bank's guarantee.  If the Bank and IFC and/or MIGA are jointly supporting a project, a single appraisal document could be used.  The PAD indicates the extent to which the Bank is relying on a third party's appraisal.11 For PBGs, the Program Document (PD) provides an overview of the development policy operation and describes the structure of the Bank's guarantee.  Proprietary or commercially sensitive information is excluded from the PAD or PD, as applicable, but the task team indicates the nature of the excluded information in the Memorandum and Recommendation of the President (MOP).


14.           Partial Risk Guarantees.  The government negotiates with the private sponsors and lenders their respective obligations with respect to the project. The Bank's task team assesses the adequacy of the agreements between the government and the private sponsors and the lenders as a basis for the provision of a Bank guarantee. As part of the appraisal the task team ensures that timely and accurate reports on the project’s management and operation as well as annual audited financial statements are furnished by or on behalf of the borrower. The task team negotiates with the lenders the terms and conditions of the guarantee, and the incorporation of these provisions in the Guarantee Agreement, which the government accepts. LEG drafts an Indemnity Agreement and a Project Agreement12 for negotiation with the government and borrower, respectively.


15.         Partial Credit Guarantees and Policy-Based Guarantees.  The task team negotiates with the lenders the terms and conditions of the guarantee. LEG incorporates these provisions in a Guarantee Agreement.13 LEG also drafts an Indemnity Agreement and a Project Agreement (if necessary–normally, when the borrower is not the government) for negotiation with the government and the borrower, respectively. 


16.         The legal agreements with the Bank, for the guarantee operations contain all relevant covenants, including applicable safeguard covenants. The task team confirms the government's acceptance of agreements to which the government is not a party.


17.         Securities Guaranteed by the Bank; Road Shows.14 LEG and PFG clear all documentation relating to securities to be guaranteed by the Bank to ensure that all the information relating to the guarantee to be provided by the Bank is accurate. LEG and PFG participate in all road show presentations to prospective investors.


18.         Fee Arrangements.  PFG, Loan Client and Financial Services Division (ACTCF), and LEG ensure that the documentation for the guarantee operation reflects the agreed fee arrangements.


Preparation for Board Presentation


19.         The Regional environment sector unit and LEG clear the PAD/PD.  The PAD/PD, with a draft MOP and a cover sheet to the Office of the Corporate Secretary, Board Operations Division (SECBO), is forwarded to the RVP, who signifies approval by initialing the cover sheet. If negotiations have not been completed, Board presentation takes place only once the structure of the guarantee is well defined, unless there are special reasons to seek an early approval.  If negotiations have been completed, the draft Guarantee Agreement, Indemnity Agreement, and Project Agreement are attached to the package.


20.         At least 18 working days before Board presentation (20 working days if a CAS discussion is involved), Regional staff send the guarantee package to SECBO.  Regional staff    prepares a printing request (Form 14) and sends it to the Print Shop with a copy of the guarantee package.  A copy of the printing request is also sent to SECBO.  At the same time, the Region sends the PAD/PD and MOP, and LEG sends the draft legal agreements, to ACTCF, which assigns a number for the guarantee after its approval by the Board.


21.         LEG prepares the Statutory Committee Report or the Recommendation of the Statutory Committee.  LEG and Regional staff obtain the signatures of the expert/nominee selected by the governor for the country, LEGVP, and the RVP.  For PBGs, the Region also obtains the signatures of the Chief Financial Officer (CFO) and the Senior Vice President and Chief Economist, Development Economics (DECVP).


22.         For IBRD guarantees, the Treasury Finance Department, in consultation with PFG and LEG, obtains any currency and market consents required from the relevant member countries under Article IV, Section 1(b), of IBRD's Articles of Agreement.


23.         After all conditions of Board presentation are met, Regional staff submit Form 1767 (Release of MOP) to SECBO.  SECBO issues the guarantee package to the Executive Directors.


Board Presentation


24.         Guarantee operations are presented to the Board under regular, not streamlined, procedures.  At least four working days before Board presentation, Regional staff sends to SECBO an attendance memorandum listing the names and titles of the presenter and other attendees.


25.         Following Board approval, SECBO notifies the InfoShop and the ACTCF, and the Region notifies the government, borrowing entity, and lenders.  The Region and the External Affairs Department prepare a press release, clear it with LEG, and issue it.  The PAD/PD is made available at the InfoShop in accordance with the provisions of The World Bank Policy on Disclosure of Information. 


26.         As necessary, the task team completes the negotiations on the terms and conditions of the guarantee.  Regional management, in consultation with PFG and LEG, determines when negotiations are complete and signing can take place. If the negotiations result in any substantial changes in the terms of the guarantee from those approved by the Board, the Region resubmits the guarantee for Board approval of the changes; in such a case, signing of the legal documents takes place after final Board approval.  The guarantee becomes effective in accordance with the provisions of the relevant legal documents.






27.         Supervision of investment projects supported by guarantees is required as long as the guarantees remain in force. Guarantee operations are supervised to ascertain whether the borrower is carrying out the project with due diligence to achieve development objectives in conformity with legal agreements, and to help identify, at an early stage, emerging issues or problems that may arise during and after project implementation and recommend possible remedies to Bank Management, the borrower and/or the project company.


Investment Projects


28.         Supervision of partial risk and partial credit guarantees is carried out in two separate phases. The first phase corresponds to the period from Guarantee Effectiveness15 up to achievement of Project Completion.16 The second phase corresponds to the period from Project Completion until Guarantee Expiration.17


29.         Supervision covers monitoring of the project’s implementation, evaluative review and reporting, as well as an assessment of the guarantee obligations. During the first phase, supervision is conducted in accordance with supervision procedures applicable to loans.18 During the second phase, supervision covers periodic monitoring19 of all legal covenants in the agreements with the Bank, and the governmental contractual obligations that are backed by a guarantee as well as obtaining and evaluating information with respect to issues that could potentially lead to a commercial or political default in the project and/or loan documents.


30.         For partial risk guarantees, Regional and PFG staff carry out supervision directly or rely on the lender's supervision. If staff is relying on lender's supervision, staff assesses the scope and frequency of such supervision. In either of the cases, staff ensures the adequacy of the arrangement for the Bank to receive all required information. Staff reviews the reports and other information received from the lender(s) and conducts any other supervision activities, including site visits, as indicated by the circumstances of the project.20


Policy Based Guarantees (PBGs)


31.         Supervision is carried out in accordance with supervision procedures applicable to Development Policy Lending (OP/BP 8.60). In supervising a PBG, the task team monitors the compliance with the agreed conditionality and the ability of the borrower to meet its obligations under the guarantee. PFG and the Region complete an evaluation of each PBG transaction after it has reached financial close. The policy impact of individual PBGs is assessed in manner similar to development policy loans; the financial impact of individual PBGs is assessed against the specific appraisal criteria set out in the PD, including incremental market access, leverage and the costs to the borrower. The assessment takes into account the volume, maturity, and costs of subsequent market borrowings by the recipient countries.


Implementation Status and Supervision Reports (ISRs)


32.         Regional and PFG staff jointly prepare the Implementation Status and Results Report (ISR) for all active guarantees. ISRs are prepared annually until Guarantee Expiration.


Implementation Completion Reports (ICRs)


33.         ICRs21 for Partial Risk and Partial Credit Guarantees are initiated two years after Project Completion and completed within six months thereafter. Regions in collaboration with PFG are responsible for the completion of ICRs for projects supported by a guarantee. Borrowers of loans guaranteed by the Bank are responsible for preparation of their own final evaluation project report as an input to the ICR. ICRs for guarantee operations should address the performance of the guarantee supported project, including the role and value of the guarantee in improving the overall sustainability of the transaction, helping client countries to access debt and mitigating critical risks that enabled the realization of the project. ICRs should also evaluate the main categories of risks guaranteed and the key issues or events that may arise in the future that could lead to a potential call on the guarantee. Guarantee operations associated with a Bank loan or an IDA credit do not require an additional ICR from that prepared for the loan(s) or credit(s) supporting the same project.




34.         Country directors are primarily responsible for ensuring that adequate staff time and resources are made available to the task team for supervision of guarantee operations. The project’s task team leader assigns responsibilities to other task team members to ensure proper supervision of guarantee operations. The task team develops a supervision plan for the guarantee operation and the key risks described in the Project Appraisal Document. An assigned PFG staff member participates as a member of the supervision task team for all guarantee operations and will be primarily responsible for addressing project issues that affect the guarantee. The Legal vice presidency (LEG) provides guidance and support on legal issues regarding the supervision of guarantee operations as needed. LEGCF, within the LEG vice presidency is responsible for coordinating all legal aspects of guarantee operations. The task team will contact LEGCF and LEGCF will consult and coordinate with any other unit within LEG, as necessary. The task team also reviews and evaluates the periodic reporting from the project company and obtains details on the adequacy of the financial management in place.


35.         When the Bank supports a project in conjunction with IFC or other multilateral institutions, it coordinates supervision with those institutions.


36.         ACTCF monitors the Bank's receipt of fees and amounts disbursed and outstanding under guarantees and immediately reports to PFG if fees are not received on the due date.


37.         When Regional and PFG staff supervising a transaction learn of any circumstances that might lead to a call on the guarantee, they inform the RVP, LEG, and ACTCF.



38.         Throughout processing and supervision of the guarantee operation, PFG provides advice and support to the Regions on matters related to Bank guarantees.  In collaboration with the Regions and LEG, PFG has primary operational responsibility for structuring guarantee coverage and pricing. It is also responsible for issuing the demand notice for the initiation and the processing fee on behalf of the Bank, and for controlling the use of the proceeds of the initiation fee.  PFG participates in the negotiations of Guarantee Agreements and the related documentation, and is also responsible for interacting with project sponsors and private lenders

  1. In this statement, "Bank" includes IBRD and IDA; "loan" refers to any debt instrument; "project" includes any public or private sector investment operation supported by IBRD and IDA as well as any public sector development policy lending operation supported by IBRD; "private lender" means a lender that is wholly or predominantly privately owned or a lender that is publicly owned but is an autonomous entity established and operating under commercial law for the purpose of pursuing profit (such as a state-owned commercial bank); and a "sponsor" is an entity responsible for developing and implementing a project.
  2. LEGCF is responsible for coordinating, within LEG, all legal aspects of guarantee operations.
  3. The PID for a project-based guarantee operation is similar to that for an investment loan (see BP 10.00, Annex A, for an outline); and the PID for a policy-based guarantee is similar to that for  development policy lending.
  4. Staff should refer to The World Bank Policy on Disclosure of Information (2002) as revised in March 2005.
  5. When a project is supported by both a loan and a guarantee, the task team establishes appropriate linkages, including cross-effectiveness and cross-default conditions for the loan and the guarantee.
  6. In case of partial risk guarantees, a project implementation and management plan is not required.
  7. Staff should refer to World Bank Policy-Based Guarantees (R99-53), approved April 20, 1999, for further details.
  8. The corporate review is carried out by the Operations Committee, unless it has been delegated to the Regional Operations Committee by the Managing Director, Operations.  For more details, staff should see the OPCS website for criteria and guidelines.
  9. The Bank's willingness to consider providing a guarantee, which may be required at an early stage in the project cycle and before the project is ready for corporate review, is conveyed to potential project sponsors, whether as an option in bidding documents issued by a member country government or one of its entities or in a negotiated transaction, after the concept review meeting considers and endorses the guarantee proposal.  Such communication will include a caveat informing the bidders that Bank's willingness to consider providing a guarantee is subject to project due diligence, compliance with applicable Bank policies, and other requirements as well as approvals of the Senior Management and Board of Executive Directors.
  10. Depending on the project's stage of development when the Bank guarantee is requested, a PCN may not be necessary and a draft PAD or PD, as applicable can form the basis for concept or corporate review.
  11. The Region maintains in its files the information and analyses that serve as the basis for its judgments about the project.
  12. The agreement between the Bank and the borrower of the guaranteed debt, which sets out the obligations of the borrower relating to the implementation of the project. The task team also negotiates any additional agreements to which the Bank is a party.
  13. In some cases, instead of being in a separate Guarantee Agreement, the guarantee may be included in the Loan Agreement or other financing agreement for the borrowing.
  14. Road Show refers to presentations made out by an issuer of securities to potential buyers about the merits of the issue.
  15. Guarantee Effectiveness refers to the date on which all conditions precedent to effectiveness as stipulated in the Guarantee Agreement are met.
  16. Project Completion refers to the implementation date of the project or the Commercial Operations Date (COD) if applicable.
  17. Guarantee Expiration refers to the date on which there is no exposure for IBRD or IDA under a guarantee.
  18. The scope of the supervision is limited to project implementation and policies applicable to projects supported by guarantee operations.
  19. This would be carried out annually, unless the task team decides to increase the frequency of supervision because of project circumstances.
  20. The lenders' supervision requirements are defined in the projects' legal agreements. These  generally include : (i) monitoring and reporting on  construction progress, operation and maintenance, project cost analysis, sources and uses of funds, implementation of environmental and social obligations; (ii) provision of  audited financial statements and  compliance certificates etc.; and (iii) assessment of risks  that may arise and their potential impact on the project's construction and operations.
  21. Existing guidelines for Loans do not apply to guarantee operations.  The scope of ICR for projects supported by guarantees is as defined.

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