A loan guarantee is in effect insurance that a debt will be repaid. A third party, such as a public lending institution or development bank takes on the risk that the borrower will not repay. The guarantor may require a fee and a contribution to a loan loss reserve to cover administration costs of the programs and a portion of the portfolio risk of the program (i.e., the cost if a certain portion of the loans that are expected to default). Loan guarantees can be used in cases where loans would otherwise not happen or where the cost of debt is too expensive to enable a bankable project.
A POLICY BRIEF ON LOAN GUARANTEES
Before you browse our library of published resources via the search link below, consider reading our policy brief about loan guarantees, which is part of a series of briefs intended to inform legislators, decision makers, analysts working for government agencies and utility executives on current good practices and lessons learned.