This report takes an in-depth look into the application, benefits and scalability of financial guarantees in impact investing. It shows how impact investors are using guarantees as a credit-enhancement tool to stimulate increased private-sector investment in solutions to social and environmental problems.
Key findings include:
- Guarantees are a powerful financial tool that can help channel private capital into impactful deals at the right terms to meet investees’ needs.
- Guarantees help mitigate risk for certain impact investors, thus enabling greater amounts of capital to reach organizations generating positive social and environmental impact.
- Guarantees enable investors to gain experience in a new sector, help prove the viability of a business model that generates social impact, or facilitate access to capital at favorable terms for nonprofits.
- Promising areas for greater use of guarantees include energy efficiency, community-based renewable energy, health care, healthy food access, and expanding small-business lending.
- The main providers of guarantees in U.S. community investing have been foundations and the lenders gaining protection have been banks.
- Guarantee use in U.S. community investing has been concentrated in the affordable housing and community real estate sectors.
- The median size of a guarantee is $2 million and the median fund or project size is $20 million.