Guaranteeing additionality? A case study of loan portfolio guarantees and their impact in Kenya

Sammanfattning

Development guarantees (DGs) have been projected to mobilise considerably more private capital per public dollar relative to other instruments, but evidence on their development impact remains limited. This thesis addresses this gap through a case study of loan portfolio guarantees (LPGs) issued by the African Guarantee Fund (AGF) in Kenya, by examining the research question: how and under what conditions does AGF’s guarantee scheme generate additionality for Kenyan MSMEs, and what are the implications for guarantees as instruments in Danish development finance? Drawing on thematic analysis of interviews with AGF, their beneficiaries and development finance experts, the analysis applies New Institutional Economics, Strategic Alliance Theory, and a Financialization lens to examine the effects of DGs in practice. The findings confirm collateral constraints as the dominant market failure in the Kenyan MSME credit market and DGs as a viable corrective instrument. In terms of financial additionality, we find AGF’s LPGs do enable formal access to finance for previously excluded borrowers. On development additionality we find that impact is conditional on PFI behaviour and technical assistance. We argue that these findings provide much-needed evidence for informing future DG facilities, including the upcoming DKK 12 billion Danish allocation to DG interventions.