21 October 2019

How can guarantees be used effectively to mobilise investment?

Mobilising private investors has always been core to CDC’s strategy. With our advisory services and our capital, we support new private equity fund managers in frontier markets so that they can fundraise successfully, and we invest equity directly in growing businesses to take them to the point where they can attract more risk-averse private capital. We know that we can do more, which is why this year we created a new Capital Partnerships team to identify more opportunities for risk-sharing partnerships and co-investment with both financial and strategic investors.

As part of our effort to mobilise private investment in Africa and South Asia, we partnered with the Centre for Strategic and International Studies (CSIS) to identify opportunities for innovation in the use of guarantees. Our report, Innovations in Guarantees for Development, identifies a range of innovative ideas; from actions that could be taken by development agencies tomorrow without too much difficulty, such as scaling-up local specialised guarantee providers or establishing new ones, to more blue-sky thinking, such as using guarantees as a tool to coordinate clusters of investments in low-income fragile states.

The report emphasises the importance of fostering local financial markets, which chimes with the broader trend towards prioritising market creation across development finance institutions. Although using guarantees to unlock individual investments can have an important impact, the larger goal must be to increase the capacity of the financial sectors in Africa and Asia, in order to understand, price, and take risks.

Innovations in Guarantees for Developmentby Romina Bandura and Sundar R. Ramanujam is available on the CSIS website.

CDC is becoming British International Investment