Project-Based Loan Guarantee for Public Sector Projects

Project-Based Loan Guarantee for Public Sector Projects

This type of guarantee covers a certain percentage of debt raised by a public sector borrower regardless of the cause of the debt service default to private lenders for public investment projects. By ensuring timely repayment of debt service, these loan guarantees allow public entities needing credit enhancement to access new financing sources or improve commercial financing terms and conditions, enabling public sector borrowers to access financing with lower interest rates and longer tenors. 

This guarantee can be particularly impactful for large-scale infrastructure projects or other development priorities that require substantial upfront capital. The guarantee coverage can be flexibly structured to cover principal repayments, interest payments, or a combination tailored to the specific needs of the borrower, lenders, and project. By enhancing the project's credit profile, we help mobilize private sector financing that might otherwise be unavailable or too costly, effectively complementing our own lending resources.  

World Bank guarantees are financial tools to leverage commercial financing for development purposes while optimizing the use of scarce public resources. The World Bank deploys its guarantees at the request of a member country. In exchange for the World Bank offering a guarantee, the member country requesting the guarantee provides a sovereign counter-guarantee to indemnify the World Bank if the guarantee is ever drawn (Indemnity Agreement). The World Bank only provides guarantees that backstop the risk of non-performance by governments or public entities for commercial financiers and, to the extent necessary, mobilize private capital to support public and private sector programs and projects.  As with any other guarantee, World Bank guarantees do not inherently reduce the risk of government non-performance. Instead, they shift the financial responsibility for the risk cover to the World Bank as a guarantor. The World Bank then transfers this financial responsibility to the Government through the Indemnity Agreement if that risk ever materializes.