Limited access to financing an obstacle for development
Access to financing for small and medium-sized enterprises in Sida's partner countries is very limited, female and young entrepreneurs are impartially disadvantaged. Without access to finance, these companies cannot start or grow their businesses. This is an obstacle for overall economic development.
Banks and other investors often find it too risky to offer loans to companies that lack experience, credit history, collateral or operate in hazardous environments.
By issuing guarantees, Sida can mobilise capital from banks and other investors.
What is a guarantee?
A guarantee is a financial instrument that is similar to an insurance policy. For a fee, it provides financial compensation for the financier if the borrower is not able to pay back. It is a risk sharing tool where Sida compensates a pre-defined part of the loan amount, making financing of the development projects less risky for the financiers.
Sida's guarantees can cover both large infrastructure projects and small loans provided by local banks. The smaller loans often go to target groups who find it extremely difficult to access funding, such as small business owners, women and young people.
Benefits of Sida's guarantee instruments
- Sida guarantees are flexible and can be used in different contexts to contribute to economic, social, environmental and climate sustainable development
- Sida's guarantees mobilize capital for specific target groups and purposes, based on Sweden's development cooperation strategies
- Investors gain greater experience in understanding risks and the interest to finance development projects increases
- Each SEK invested in a development project can be multiplied by Sida's guarantees, thus contributing to the project reaching more people.
Sida’s work with guarantees
Financing can be a challenge as an entrepreneur in a low-income country. By issuing guarantees, Sida reduces the risk for lending institutions and mobilises capital for entrepreneurs.
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