Credit Guarantee Schemes Upstream Seed Project
Area of Operation: Global (remote)
Duration of Assignment: February 2021 – March 2022
Name of Client: International Finance Corporation (IFC)
LANDT worked to develop a global framework to design and operationalize commercially viable, sustainable, replicable models for credit guarantee schemes to addressing challenges with financial sustainability, weak governance and risk management, inappropriate legal/regulatory framework, addressing credit risk concerns, inadequate funding and coverage, etc.
As a part of the project, LANDT was tasked with structuring potential financial instrument(s) that will allow for risk transfer and/or for IFC to participate or invest in credit guarantee schemes in different countries e.g., through counter-guarantees, portfolio securitizations, or aggregation and reinsurance etc. LANDT also needed to conduct a qualitative and quantitative analysis of credit guarantee facilities for MSMEs around the world, develop a blueprint for operationalization of good practice, sustainable CGS for new or existing CGS, and structure appropriate investment instrument(s) through which IFC and other investors could invest in the CGS.
- Mapped and created a database of credit guarantee agencies globally across regions.
- Conducted a global benchmarking and sample selection of the most successful credit guarantee schemes in terms of best practices, sustainability, outreach and additionality, and assessment of their quantitative and qualitative elements to compare different structures and offerings, and identification of innovative features and risk management strategies.
- Identified CGSs that used capital markets to increase their outreach and lower their financial risk, and mapped alternative investment and risk management instruments/models such as securitization, re-insurance, counter guarantees, etc. currently used by CGS, detailing their structure, features, participating parties, etc., and identifying examples of success and failure.
- Developed a blueprint for operationalization of good practice, sustainable CGSs
- Created financial and legal boilerplate documents and a sample credit guarantee agreement.
- Identified 3-5 target countries with potential for pilots/ implementation across regions (for new and existing schemes), based on market size and demand and readiness, SME finance gap, regulatory environment, and through engagements with stakeholders and potential private investors, status of their current CGS if any, and mapping of relevant stakeholders within target countries and required actions for operationalization as per blueprint developed.
- Proposed investment instrument(s) that meet IFC investment criteria and will allow the IFC to support or invest in CGS in different countries.
- Defined the structure and features of proposed instrument(s), developed a blueprint for the proposed instrument that is implementable, accompanied by a clear action plan, financial and legal analysis, and template financial and legal documents and agreements.
- Identified potential IFC partners (e.g., commercial global re insurers, mobilization partners, CGS which could potentially be part of the proposed structure).