Abstract
Guarantees undoubtably form an integral part of the European Union’s External Investment Plan (EIP) and Global Gateway initiative, and these are arguably a favourable tool for development finance because they can achieve a much larger amount of lending to individuals or enterprises in need through leverage effects (i.e. the ratio total loans issued that are backed by the guarantee to the actual amount of the guarantee portfolio, without taking into account the costs of the guarantee operations). The challenge of evaluating the impact of the credit guarantees, and in particular the impact on employment, is exactly due to these leverage effects.This paper explains the possible ways of assessing the employment impact of guarantees in the context of sub-Saharan Africa, but the methodologies are not limited to these countries. An initial assessment of the potential employment impact of a guarantee programme is clearly feasible, but it would require certain stylised assumptions, including the countries in which the guarantee operates, the amount of guarantee allocated, and, more importantly, the target leverage ratio. It also emphasises the need to use administrative data (for accounting and financial reporting purposes) as collected by the development banks and national financial institutions to improve the quality of the employment estimates. These assessments should also be supplemented by business surveys to capture how these guarantee-backed loans are being used (or are planned to be used) to support the economic development of communities. The ex-post evaluation of employment impact, which is often conducted at the firm-level, could also benefit from access to such administrative and survey data.