The World Bank's Guarantee instrument was formally mainstreamed in 1994 to address the growing need to offer political risk mitigation products to commercial lenders contemplating financial investment in the infrastructure sectors of developing countries.  The Bank's fundamental objective in offering guarantees is to mobilize private capital for such projects on a " lender of last resort " basis.

At present, the Bank offers three basic types of guarantees. 

• Partial credit guarantees cover debt service defaults on a specified portion of a loan or a bond.  Such guarantees allow public sector projects to extend maturities and lower spreads. 
• Partial risk guarantees cover debt service defaults on a loan to a private sector project caused by a government's failure to meet its contractual obligations related to a private project. 
• Policy based guarantees cover a portion of debt service on a borrowing by an eligible member country from private foreign creditors in support of agreed structural, institutional, and social policies and reforms.