Guarantees

Loans guarantees
Description

Loans guarantees protect creditors acting as a hedge against default risk. It is therefore a form of insurance that enhances credit quality and decreases credit cost. Guarantees can be provided by federal governments, by local governments themselves,  international institutions or the private sector.

Advantages

Risk mitigation thus providing further incentive to invest in a context of insufficient financial information and opacity ; opportunity to create a reserve fund for guaranteed entities whose revenue streams are unsufficiently known

Drawbacks and precautions

May represent a disincentive to get to know local governments who borrow money, the way they operate and the determining factors of their financing equilibrium ; need to identify clearly revenue streams

Prerequisites

Suitable Regulatory Framework

Operation

Guarantors can be federal governments, local governments, international insitutions or private or public entities operating in the same industry.

Guarantees provided for all types of loans - bank loans, bond issues, etc.

Guarantors' resources.

Revenue intercepts
Description

The guarantee is based on the ability to directly capture revenue streams generated by the entity covered by the guarantee, in the event of default

Advantages

Risk mitigation thus providing further incentive to invest in a context of insufficient financial information and opacity ; opportunity to create a reserve fund for guaranteed entities whose revenue streams are unsufficiently known

Drawbacks and precautions

May represent a disincentive to get to know local governments who borrow money, the way they operate and the determining factors of their financing equilibrium ; need to identify clearly revenue streams

Prerequisites

Suitable Regulatory Framework

Operation

Guarantors can be federal governments, local governments, international insitutions or private or public entities operating in the same industry.

Guarantees provided for all types of loans - bank loans, bond issues, etc.

Guarantors' resources.