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Sida's guarantee instrument

Sida can issue guarantees to encourage banks and other investors to invest in small businesses. This allows businesses and entrepreneurs in developing countries to access capital more easily, facilitating investments that help reduce poverty.

Financing helps businesses grow

Many SMEs in Sida’s partner countries have difficulty obtaining finance. This is particularly true for women and young entrepreneurs. This may because a company is relatively new, has not have received a loan before or has no security for a loan. Banks and investors then decline to risk their money. Another barrier may be that a company operates in a conflict-prone environment. Without finance, businesses cannot grow or recruit staff. This hinders businesses and the country’s economy.

When Sida provides a guarantee that part of the loan will be repaid, banks take the risk of offering loans to entrepreneurs and small businesses. This creates better opportunities for people and whole communities.

The Sida guarantee helps people living in poverty and oppression improve their living conditions.

What is a guarantee?

Sida’s guarantees act as insurance for the lender. If the borrower is unable to repay the debt, the lender still gets part of the money back. Just like a private individual who pays a fee or premium for their insurance, the Sida guarantee beneficiary (a bank or other investor) needs to pay a fee for the guarantee.

Sida’s guarantees are able to cover lending for both large infrastructure projects and small loans from lenders such as local banks. Most of the guarantee projects cover part of the lending to SMEs in key sectors such as agriculture, health, renewable energy and manufacturing. The smaller loans are often provided to those who find it particularly difficult to access finance, such as small business owners, women and young people.

Benefits of Sida’s guarantees

  • They are flexible and can be used in different areas to contribute to development that is sustainable for the economy, society, the environment and the climate.
  • They provide access to capital for specific target groups and purposes. All investments are based on Sweden’s development cooperation strategies.
  • Along with capacity development programmes, they help investors analyse risks, which increases their interest in lending.
  • Every krona invested in a development project is multiplied and helps the project reach more people and more places.
  • They help people living in poverty and oppression improve their living conditions.

Movie

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.

Play time: 2m 6s

Updated: December 29, 2021