First loss guarantee system helps borrowers indirectly
The government, on the other hand, doesn’t need to put money directly in the hands of the borrower. It saves resources and compensates only in cases where the borrower defaults and the chance of a recovery is bleak
The first loss guarantee is a mechanism whereby a third party compensates lenders if the borrower defaults. As the third party pays for the losses, it gives lenders confidence to give out loans. It is an insurance against a loss.