Emerging Insight: Developing an impact monitoring system for Sida’s guarantee instrument

The Swedish International Development Agency (Sida) has been offering guarantees for the last decade to encourage banks to lend to under-served target groups. A guarantee, in this case between public and private actors, shares the risk of lending to mobilize additional capital to achieve development outcomes. Because of this development character, measuring the impact of the guarantees becomes paramount. This process is complex and requires a systematic approach. Challenges arise as the impact created through guarantees is largely indirect and experienced at the level of the final beneficiaries, such as individuals, agricultural entrepreneurs, small businesses and their employees.

To improve the identification and measurement of impact, Sida partnered with the ILO. We conducted studies in Guatemala and Bosnia and Herzegovina where Sida has active guarantees, the findings are summarised in our latest publication. Some highlights include:

• The engagement of the bank, the guarantee partner, is key for successful impact management. Impact management of guarantees is not conducted solely by the guarantor. The bank also plays a key role by supporting the collection of impact data.
• The studies provided insights about the demand for technical assistance and on how to design a more impact-oriented guarantee, such as by incorporating a gender lens and incentivizing outreach to clients most in need.
• The guarantee instrument combines increased development impact with benefits to the guarantee partners, which are crucial for the sustainability of the financial services offering. The financial institutions in the two countries were better positioned to meet the needs of their clients and were able to grow their portfolios with the guarantee.

The studies also informed the development of elements of an impact monitoring system for Sida’s guarantee instrument. Sida and the ILO will continue applying these tools in additional countries, and the results of these applications will be available on the project webpage.