Article

Credit Guarantees: Closing the Gap Between Rhetoric and Social Impact

2026-09-16 · By Ben Taylor, CEO, Agora Global

Credit guarantees can unlock finance for underserved businesses, but mobilising capital does not automatically create lasting social impact. Drawing on Agora Global’s analysis, this article explores how guarantees can move beyond transaction volumes to drive systemic change by improving market access, changing lender behaviour and strengthening jobs, livelihoods and long-term financial inclusion.

With development budgets under pressure and the financing gap for the Sustainable Development Goals remaining substantial, governments, donors and development finance institutions are increasingly looking for ways to make limited public and philanthropic capital go further.

Credit guarantees have become one of the tools of choice. By promising to absorb some of a lender’s losses if a borrower defaults, a guarantee can reduce perceived risk and encourage finance to flow towards businesses and communities that might otherwise struggle to access it.

The attraction is understandable. Rather than funding development outcomes directly, public or concessional capital can potentially unlock much larger pools of commercial finance. But there is an important social impact question behind the numbers: are guarantees creating lasting changes in who gets access to finance, or are they simply enabling transactions that stop when the guarantee disappears?

A recent Agora Global paper, Designing Credit Guarantees for Systemic Impact, argues that the answer is far less straightforward than the language of “catalytic capital”, “leverage” and “market creation” can sometimes suggest.

For businesses, investors and social impact practitioners, this matters because mobilising more capital is not the same as creating systemic impact.

From Transactions to Lasting Change

At its simplest, a credit guarantee transfers part of the risk of lending from a financial institution to a guarantor. There are good reasons to do this. Guarantees can help capital reach borrowers facing collateral constraints or other barriers to finance. They may also deliver valuable economic and social outcomes in circumstances where markets are unlikely to operate without ongoing support.

The more ambitious proposition, however, is that a guarantee can temporarily correct a dysfunctional market and then withdraw.

Under this “catalytic exit” model, lenders may be avoiding a particular group of borrowers because they overestimate default risk, underestimate their commercial potential or lack sufficient information. A guarantee encourages lenders to test those assumptions. Good repayment and performance data should then demonstrate that those borrowers are commercially viable, enabling lending to continue without concessional support.

That is potentially powerful. Imagine finance beginning to reach previously underserved entrepreneurs or smaller businesses, helping them invest, create jobs and strengthen local livelihoods and commercial lenders continuing to serve those markets after the guarantee ends. That is the difference between financing transactions and changing a system. The problem is that the second outcome cannot be assumed.

Measuring What Really Matters

Evidence reviewed in this paper suggests guarantees can generate additional lending and positive outcomes, but results vary significantly. This exposes a weakness in how success is often measured.

A guarantee facility might report millions in capital mobilised and extremely low default rates. On the surface, that sounds impressive. Yet a low loss rate tells us surprisingly little about systemic impact. It could mean lenders discovered a viable underserved market. But it could also mean they selected relatively safe businesses they would have financed anyway.

Social impact should not be measured simply by how much money moves. We need to understand who gains access, what opportunities that finance creates and whether barriers remain lower once concessional support is removed.

The ultimate test of a catalytic guarantee is therefore not how much guaranteed lending occurred, but whether unguaranteed lending follows.

Are financial institutions changing how they assess previously underserved customers? Are successful borrowers able to return for commercial finance? Are other lenders entering the market? And are businesses able to translate better access to finance into jobs, livelihoods, services or other meaningful outcomes?

Without those changes, a guarantee may still deliver worthwhile benefits. But we should be honest about what it is achieving: an ongoing subsidy or risk-sharing mechanism rather than systemic market transformation.

Designing Guarantees Around the Problem

Agora Global identifies three shifts that can help close this gap.

First, start with the system, not the financial instrument.

Before launching a guarantee, funders need to understand why finance is not flowing. Are lenders genuinely mispricing risk? Or are businesses struggling because of weak demand, inadequate infrastructure, regulation, poor business capabilities or other structural constraints?

If the underlying businesses are not commercially viable without continued support, temporarily transferring credit risk will not magically create a sustainable market.

Second, manage for learning rather than simply administering transactions.

If the purpose of a guarantee is to change lender behaviour, those managing it should actively investigate whether learning is taking place. Are lenders revising their risk assumptions? What does repayment data tell them? Are they developing new products or processes as a result?

This moves guarantees from passive financial mechanisms towards active market-building interventions.

Third, measure systemic outcomes.

Volume, leverage ratios and losses remain useful indicators, but they are insufficient. Measurement should examine whether lenders’ assumptions change, whether finance reaches genuinely underserved borrowers and, crucially, whether commercial lending continues during and after the guarantee.

Connecting Finance to Social Impact

There is a wider lesson here for blended finance and impact investment.

In a constrained funding environment, there is understandable pressure to demonstrate that every pound of public or philanthropic money mobilises several more pounds of private capital. But leverage is a means, not an end.

The purpose of innovative finance should ultimately be to improve outcomes for people and strengthen the systems on which those outcomes depend. That means connecting financial additionality to social additionality.

Did an entrepreneur gain access to finance they genuinely could not previously obtain? Did that capital enable a viable business to grow? Were jobs or livelihoods strengthened? And, importantly, is the financial system now more capable of serving similar businesses without continuing subsidy?

These questions should matter to companies too. Businesses increasingly participate in blended finance structures, impact funds, supplier-finance programmes and partnerships designed to strengthen the markets and communities around their operations. Applying a systemic lens can help ensure that these investments build lasting capability rather than temporary dependence.

Asking Harder Questions

Credit guarantees remain an important part of the development finance toolkit. The argument is not to use them less simply for the sake of it, but to use them more intentionally.

Before reaching for a guarantee, donors, governments, DFIs, foundations and investors should ask: What market failure are we trying to solve? Why should a guarantee correct it? What behaviour needs to change? And what will remain once our support disappears?

With development resources becoming scarcer, we cannot afford to confuse capital mobilised with impact achieved. The opportunity is to design finance around a much bigger ambition: not simply completing more transactions, but creating markets that work better for people long after the intervention has ended.