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Financing sustainable urban development with guarantees

CASE STUDY 1 : Financing sustainable urban development with guarantees

The issue of financing urban development is increasingly central in international debates. Since the drive towards decentralisation and the emergence of local authority networks on the international scene in the 1990s, local authorities have been called on to take on increased responsibilities. In parallel, urbanisation has fed a growing demand for local urban services. Yet, financial devolution and local resource generation are still far from adequate. Habitat III has underlined that local finance is key to realising the SDGs, following the principle of subsidiarity. The international urban community argues that decentralisation needs to prepare cities to enable them to access funds independently, and points out that cities are places of wealth and wealth generation—in other words, investing in cities is pictured as “good business”. Yet this narrative still needs to reach out to and convince the targeted private sector.

The study specifically focused on the political implications and rationales of guarantees in addressing market failures in the financing of cities. As a starting point, we have followed the standpoint of international and particularly French development actors in approaching the issue. We have used an “ideal-type” of guarantee as risk mitigation instrument provided by an international development actor (either public or philanthropic) to a city to help the latter access external private capital. Though experiments do exist, knowledge remains scattered and the theoretical promises of such an instrument are still to be tested and proven on the ground.

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