Even creditworthy and well-run cities in developing countries find themselves limited in mobilizing finance for large-scale infrastructure projects that are essential for implementing mitigation and adaption goals. The required city-level projects targeting urban transport, energy and energy efficiency, waste management or water, face financial barriers due to insufficient access to capital for reasons such as national governments prohibiting subnational international borrowing, or by multi- and bilateral lenders (e.g. World Bank, KfW) requiring a national sovereign guarantee as a security, or private banks, requiring risk premiums or collaterals cities cannot provide or which render projects financially unviable.
Sub-national guarantees will allow cities to be perceived as creditworthy bankable clients by public and private investors, forgoing the need for sovereign guarantees and overcoming the foreign exchange risks. The instrument will focus on cities that are legally allowed to borrow capital, and a technical assistance component will build know-how on guarantees within cities and governments, and allow to share best-practices internationally.