New platform leverages power of guarantees to boost private financing

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Developing countries will need an average of $2.4 trillion each year between now and 2030 to address the global challenges of climate change, conflict, and pandemics. Without it, children will attend substandard schools, families will go without quality health care, and communities will struggle to cope with the effects of climate change.

Bilateral donors and multilateral development banks alone don’t have the resources to match this need. It’s critical to mobilize private capital to join this effort. Yet it’s increasingly difficult for low- and middle-income countries to attract the private capital they need—and lay the foundation for accelerated economic growth. The risk-return ratio for investing in emerging economies is still not sufficient.

The private sector can’t step up without improved funding structures, new ways to balance and allocate risks, and reimagined partnerships.

The World Bank Group’s Private Sector Investment Lab, instituted by President Ajay Banga, recognized this challenge. One of the solutions it proposed was to ramp up our organization’s guarantees work. That’s why we’ve launched a groundbreaking new platform to catalyze private sector capital and accelerate sustainable development on a livable planet. The new World Bank Group Guarantees platform is designed to boost our guarantee volume to $20 billion by 2030.

While the World Bank Group still lends significantly to developing countries, we are pivoting from primarily being a lending institution to also being a leveraging one. The guarantee platform, housed at the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA), will be a one-stop shop for all the institution’s guarantee business. The platform has three product families: credit guarantees (for loans to the public or private sector); political risk insurance (for private sector projects or public-private partnerships); and trade finance guarantees for public sector risk.

We have seen the power of guarantees to boost private finance to tackle the toughest development challenges. With the World Bank’s lead on country and sector dialogue and the International Finance Corporation’s (IFC) financing and technical assistance, guarantees can be the final missing piece to unlock private capital in many lower-income countries in dire need of sustainable infrastructure.

For example, political risk guarantees were deployed to support the construction of Africa’s largest mini-grid in the Democratic Republic of Congo (DRC) as part of the World Bank Group’s engagement with the country, together with IFC’s support to the private sector. The mini-grid provides affordable and sustainable electricity to over 28,000 households and businesses in the DRC. This is just one example, among countless others, of how guarantees can contribute to the World Bank Group’s goal to increase energy access to at least 300 million people in Africa.

MIGA’s guarantees, built upon financing from the World Bank and advisory from IFC, facilitated foreign direct investment to support Senegal’s first electric bus rapid transit system. The 18.3-kilometer route will transport 300,000 passengers daily, and the project is expected to lead to 59,000 tons of carbon dioxide equivalent savings annually.

But better utilizing the potential of guarantees is just the beginning. History has shown us that turning to innovation to meet the needs of our country and private sector clients will have the greatest impact, and so innovation is also at the heart of our new platform.

We have an impressive track record of facilitating cross-border investments using our guarantee instruments. In fiscal year 2024, the World Bank Group issued approximately $10.3 billion in new guarantees using products that will be part of the platform: $8.2 billion from MIGA, $1.4 billion from IFC, and nearly $700 million from the World Bank. Guarantees can be an efficient use of capital as well. For every dollar of operating capital MIGA deploys, for instance, it can mobilize $15 of private capital — a very efficient use of shareholder capital.

We stand at an inflection point where guarantees are emerging as a powerful tool in international development financing. Leveraging the World Bank Group’s collective expertise over 80 years of engagement with governments, the guarantee platform is ready to support private sector investments in developing countries to drive much-needed, impactful solutions.

Photo Credit: Vector Stock