What is it?
Homeless International's Guarantee Fund was established in 1994 using a variety of donations and loans, largely from the UK Housing Sector. The Fund is designed to provide bank guarantees in order to encourage banks to lend to Homeless International's partners in their local currency for the purpose of housing and infrastructure development. The value of the Fund currently stands at around £0.7 million.
What is a bank guarantee?
A bank guarantee is essentially promised security against a bank loan. The guarantee can be used to cover (or at least minimise) the loss incurred by the lender in the event of default by a borrowing Homeless International partner.
Why are bank guarantees needed?
Banks are essentially interested in profit, and the ability of a bank to make profit is directly linked to its ability to manage risk. What risks a bank decides to take on depends on a variety of factors, including context (such as level of competition, political and economic situation, and governing regulations), company policy and procedures, available resources and crucially the people making up the staff team of a bank. Although our partners are support NGOs and hence formal entities, they find it very difficult to access affordable capital in the form of loans from financial institutions to finance developments. This is generally because such institutions view lending to/for the poor as high risk and low return, are geared up to work with those elements of the formal sector that are conventionally considered as 'bankable' - for example, business, government and the middle and upper classes - and/or operate in a context where interest rates are simply not yet affordable to the poor as is the case in much of sub-Saharan Africa.
Homeless International, however, believes that sustainable access to affordable finance from financial institutions is essential if poor-friendly infrastructure development is to be scaled up, and that banks can be a useful way of helping achieve this. They can help banks, the poor and the NGOs that support them to form partnerships which provide a means to improve the knowledge and understanding each party has of each other, and as a result can dilute or even dispel prejudices that may exist. This can lay the basis for longer term lending and saving arrangements and enable the poor and their NGO allies to negotiate more favourable terms and conditions for finance.
Browse the links in the left hand menu to read more about how the Guarantee Fund works, and the guarantees to partners that have been provided so far. Alternatively, you can follow the links at the bottom of this page.
