The financing model underpinning the original Millennium Development Goals (MDGs) focused largely on domestic resource mobilisation and official development assistance (ODA). The implicit underlying assumption was that when countries were unable to mobilise sufficient domestic resources to finance progress towards the MDGs, the gap should be filled either with ODA or through debt cancellation (Greenhill and Prizzon, 2012).
The current development finance landscape is very different. Traditional ODA is under pressure. Actors in development finance are mushrooming, ranging from non-Development Assistance Committee (DAC) donors and philanthropists to providers of climate finance. Furthermore, the development of new and complex innovative finance instruments has created new opportunities to mobilise additional funds and to use these in more effective ways, especially as highlighted in the debate on financing the post-2015 Sustainable Development Goals (SDGs) agenda.
Among these instruments, guarantees for development have the potential to play an important role. Guarantees are a form of insurance to help a borrower – whether a national or sub-national government, a state-owned enterprise, or a private sector actor – obtain financing at better terms than would be possible without the guarantee.
This paper considers a number of issues if multilateral development banks aim to increase the use of guarantees in development, including the rationale for their use, different types of guarantee instruments, obstacles to increasing their use at MDBs and possible solutions, trends over time at different MDBs, and possible ways to account adequately for guarantees in aid measurement. This report, however, does not investigate development effectiveness and the impact of guarantees for development.