At the Mitigation Action Facility, guarantees are increasingly being used as a strategic financial instrument to help unlock climate investment and accelerate implementation of Nationally Determined Contributions (NDCs). As climate finance needs continue to grow and public resources remain limited, guarantees are becoming increasingly important tools for mobilising private investment and enabling the scale-up of low-carbon solutions.
This news piece is the third in a series exploring the financial mechanisms used across the Mitigation Action Facility portfolio. Following earlier features on grants and concessional loans, guarantees represent another important instrument helping to bridge financing gaps, de-risk investments, and support the transition towards low-emission development pathways.
Guarantees in the portfolio
The growing role of guarantees in the Mitigation Action Facility portfolio reflects a broader shift in climate finance towards instruments that can mobilise significantly higher levels of private investment. Guarantees now represent 34% of the total portfolio across 17 projects, with the majority are concentrated in the energy and transport sectors, accounting for 60% and 27% of projects respectively. Nearly half of all guarantee-related projects are still under preparation, highlighting the growing interest in the mechanism in recent funding rounds.
The guarantees used are primarily credit risk guarantees and off-taker guarantees, often supporting debt investments and typically covering between 50% and 80% of private sector risk exposure. In many cases, the Mitigation Action Facility assumes the highest level of risk through first-loss coverage or pari passu risk-sharing arrangements with financial partners, particularly in areas where technology risks are relatively low, but commercial risks – perceived or real – remain high (see Figure 1). These risks often stem from the characteristics of the target groups, which include SMEs, start-ups, rural households, and individual entrepreneurs, as well as emerging green business models that have not yet been proven in local markets.
Guarantees in blended finance: Making solar cold chains investable in Kenya
In Kenya, post-harvest losses remain a major challenge, with an estimated 40 to 60% of perishable produce lost each year due to inadequate storage infrastructure, fragmented supply chains, and limited access to cooling infrastructure. Smallholder farmers are particularly affected, as cold storage systems require significant upfront investment and the sector is often considered too risky by financial institutions, despite strong demand.
To address these barriers, the Kenya Post-Harvesting Solar Cooling project aims to scale solar-powered cold chain solutions across agricultural value chains. It supports cold storage service providers to deploy and operate clean, reliable cooling infrastructure that preserves perishable produce, improves market access, and strengthens farmers’ livelihoods while reducing emissions.
The project combines concessional loans, a loan guarantee fund covering up to 50% of lending risk, and a tariff support facility to help stabilise revenues for cold-chain service providers. Together, these instruments address multiple financial market failures simulatenously: the concessional loan reduces the cost of capital, the guarantee shares risk with local financial institutions, and the tariff support facility mitigates early-stage revenue volatility.
By combining these instruments, the project aims to reduce financing barriers, encourage local banks to lend to the sector, and improve the commercial viability of solar-powered cold storage.
The programme is expected to mobilise around EUR 27 million in private investment, support the installation of approximately 1,000 solar-powered cold storage facilities, and benefit around 60,000 smallholder farmers over the next five years. Beyond reducing post-harvest losses and improving food security, the project is designed as a catalytic intervention that demonstrates how blended finance and guarantees can unlock long-term private investment for the green transition.
Lessons learnt: Guarantees require strong institutional ecosystems
Experience across the portfolio shows that guarantees can be highly effective in mobilising climate investment, but they also require strong institutional frameworks, coordination, and long-term commitment.
Key challenges identified across projects include:
- Limited guarantee infrastructure in many partner countries
- Complex and time-consuming establishment processes for new guarantee funds
- Regulatory barriers affecting local financial institutions
- Administrative complexity requiring coordination among multiple stakeholders
- Competition from simpler instruments such as grants, subsidies, or concessional loans
The effectiveness of national guarantee mechanisms often depends on political priorities and regulatory stability, both of which can shift over time. At the same time, guarantees are increasingly recognised as critical instruments for enabling investments in sectors and markets where commercial finance alone remains insufficient.
Looking ahead
As climate finance increasingly shifts from direct funding towards catalytic investment approaches, guarantees are expected to play an even greater role in mobilising private capital and supporting emerging low-carbon markets.
By reducing uncertainty, strengthening financial ecosystems, and improving the bankability of climate investments, guarantees can help create the conditions needed for long-term market transformation. Across the Mitigation Action Facility portfolio, they are increasingly being used not only as risk-sharing tools, but as strategic instruments for scaling climate action and accelerating implementation of NDCs.
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