The World Bank Guarantee Program was created to address the growing need to offer political risk mitigation products to commercial lenders contemplating financial investment in developing countries. All Bank guarantees are partial guarantees of private debt, so that risks are shared between the Bank and private lenders. The Bank’s objective is to cover risks it is in a unique position to bear, given its experience in developing countries and its relationships with governments.
By covering government performance risks that the market is not able to absorb or mitigate, the World Bank’s guarantee mobilizes new sources of financing at reduced financing costs and extended maturities, thereby enabling commercial/private lenders to invest in projects in developing countries. Guarantees can mitigate a variety of critical sovereign risks and effectively attract long-term commercial financing in sectors such as power, water, transport, telecom, oil and gas, and mining. Guarantees can also enhance private sector interest in participating in privatizations and public private partnerships. It can also help sovereign governments access the financial market.
The Bank’s presence in transactions is seen by investors as a stabilizing factor because of the World Bank’s long term relationship with the countries and policy support it provides to the governments. The World Bank Guarantees help catalyze private financing needed in emerging countries, which leads to greater job and income opportunities for people, and therefore contribute to the achievement of the Millennium Development Goals’ overall challenge of reducing poverty.