Multilateral development bank lending capacity is expanding – but can guarantees mobilise private capital at scale?

About the research

The revision of S&P’s Global Ratings’ Multilateral Lending Institutions (MLI) Ratings Methodology in October 2025 increased estimated multilateral development bank (MDB) lending headroom by approximately USD 600-800 billion. This research was conducted with S&P, examining how MDB-backed guarantees function within renewable energy project finance structures and whether they meaningfully support private capital mobilisation in emerging and developing economies (EMDEs).

The challenge

If MDBs are gaining up to USD 600-800 billion in new lending headroom, how much of it will actually reach private investors in emerging markets? The answer depends on another: are guarantee structures designed to mobilise long-term private capital, or do they simply make individual deals bankable? This study examines that distinction across 20 real transactions in Africa and Asia.

Data and method

The study adopted a project-case methodology covering 20 MDB-supported renewable energy transactions across Africa and Asia, based on each case’s Project Appraisal Documents (PADs). To assess this systemically, we developed a diagnostic matrix derived from S&P’s project finance framework which evaluated guarantee structures across four higher-order mobilisation dimensions:

• Binding risk absorption
• Financing terms improvement
• Long-term capital mobilisation
• Capital additionality.

The guarantees assessed included:

• Partial Risk Guarantees (PRGs)
• Partial Credit Guarantees (PCGs)
• Political Risk Insurance (PRI).

Key findings

Guarantees work

Within the transaction examined, MDB-backed instruments are effective at stabilising the condition under which private lenders and investors enter infrastructure deals. They address the risks that most directly threaten bankability in emerging markets: offtaker non-payment, government contractual breach, and regulatory uncertainty. The sovereign indemnity structures embedded in most PRGs are credible precisely because MDB preferred creditor status creates strong government incentives to honour their obligations.

But bankability and mobilisation are not the same thing

The diagnostic analysis makes this distinction concrete. Across the 20 projects, long-term capital structures risks remain almost entirely unaddressed. Seventy percent of projects leave refinancing risk uncovered, and no project provides mechanisms to eliminate dependence on future project cash flows for final debt repayment. Full credit substitution is absent across the sample. Structural recovery in default is entirely reliant on project assets and cash flows, not guarantor balance sheets.

The mobilisation scoring framework makes the consequence explicit

Standalone PRGs, which make up eleven of the twenty cases, are transaction enabling: they remove binding entry barriers without essentially expanding the pool of investors willing to participate, extending the tenor of capital committed, or attracting investment that would not otherwise have been forthcoming. Layered PRG-plus-PRI score considerably higher, not because they are larger or more expensive, but because they are functionally broader, addressing political, contractual, and in some cases refinancing dimensions together.

Bottom line

MDB-backed guarantees are highly effective at stabilising renewable energy projects in emerging markets, particularly by addressing payment-chain and operational risks. However, stronger mobilisation of long-term private capital depends on broader and more integrated structures – particularly combinations such as PRG and PRI – capable of simultaneously improving liquidity resilience, investor confidence, and structural investability.

Implications for decision makers or practitioners

For MDBs and development finance institutions

The findings suggest that guarantee effectiveness depends not only on the presence of risk mitigation, but also on the breadth and interaction of coverage provided. MDBs may therefore need to move beyond narrow liquidity-oriented PRGs toward more integrated structures combining payment security with political and sovereign-related protections. Several cases combining PRG and PRI mechanisms demonstrated stronger mobilisation characteristics by addressing multiple investor concerns simultaneously.

For institutional investors

Private investors and lenders may place greater emphasis on financing structures that improve long-term capital resilience alongside short-term project stability. This includes prioritising projects with broader and layered guarantee arrangements, such as combined PRG and PRI structures, which address both operational payment risks and sovereign-related activities. Investors may also encourage financing arrangements with stronger refinancing visibility and long-term risk-sharing mechanisms to improve infrastructure investability through the project lifecycle.

For policymakers in EMDEs

The study highlights that guarantees cannot fully substitute for underlying market and regulatory conditions. Strengthening offtaker creditworthiness, regulatory consistency, and local capital market depth remains critical to reducing reliance on external credit enhancement mechanisms and improving long-term project investability.

For climate finance practitioners

Mobilisation assessments should move beyond aggregate financing volumes toward transaction-level analysis of risk allocation and structural investability. The findings indicate that broader and layered guarantee structures appear more effective in supporting mobilisation than standalone risk protections focused only on near-term liquidity support.