International Financial Institutions (IFIs)
The Multilateral Investment Guarantee Agency
MIGA is an international financial institution, member of the World Bank Group, which offers political risk insurance guarantees to private sector investors and lenders, designed to protect foreign direct investments (FDI) against political and non-commercial risks in developing countries.
MIGA's stated mission is “to promote foreign direct investment into developing countries to support economic growth, reduce poverty, and improve people's lives”. MIGA’s guarantees protect investments against-non-commercial risks and can help investors obtain access to funding sources with improved financial terms and conditions. As a multilateral development agency, MIGA only supports investments that are developmentally sound and meet high social and environmental standards.
The agency focuses on:
- Countries eligible for assistance from the International Development Association (the world’s poorest countries);
- Conflict-affected environments;
- Complex deals in infrastructure and extractive industries, especially those involving project finance and environmental and social considerations;
- South-South investments (from one developing country to another).
Since its inception in 1988, MIGA has issued more than $28 billion in political risk insurance for projects in a wide variety of sectors, covering all regions of the world. It insures long-term debt and equity investments as well as other assets and contracts with long-term periods.
MIGA's total investments amounted to $1.1 billion in 2011. It issued $2.1 billion worth of new investment guarantees in 2011 and held $1.5 billion in total assets.
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The African Development Bank
The African Development Bank (AfDB) is a multilateral development finance institution founded in 1964, established to contribute to the economic development and social progress of African countries.
To support private sector development in regional member countries, the African Development Bank offers two types of guarantees:
- Partial Credit Guarantee (PCG)
PCGs cover a portion of scheduled repayments of private loans or bonds against all risks. They could be utilized to support mobilization of private funds for project finance, financial intermediation and policy-based finance.
- Partial Risk Guarantee (PRG)
PRGs cover private lenders against the risk of the government, or a government-owned agency, failing to perform its obligations vis‐à‐vis a private project. PRGs can attract commercial financing in project finance transactions, particularly in public sector utilities such as power, water, oil and gas, and mining, where project success depends as much on Government undertakings, as on private commercial acumen. In public‐private partnerships (PPPs), PRGs can give assurance to the private partners that government will meet its obligations toward the partnership. These guarantees can cover a variety of government risks:
- government contractual payment obligations;
- availability and convertibility of foreign exchange;
- changes in law;
- expropriation and nationalization.
The commercial risks under PRGs are fully born bu the private investors.
Borrowers eligible for an African Development Bank’s loan are eligible for its Guarantee. Maturities are up to 15 / 20 years for sovereign / non-sovereign guaranteed borrowers.
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EIB - The European Investment Bank
The European Investment Bank (EIB), a publicly-owned international financial institution, is the European Union's non-profit long-term lending institution established in 1958 under the Treaty of Rome. As a “policy-driven bank” whose shareholders are the Member States of the EU, the EIB uses its financing operations to bring about “European integration and social cohesion”.
Although about 90% of projects financed by the EIB are based in EU member countries, the Bank does fund projects in about 150 other countries: non-EU South-Eastern European countries, Mediterranean partner countries, ACP countries, Asian and Latin American countries, Russia and other eastern neighbours of the EU, in order to implement the financial pillar of the union's external cooperation and development policies by encouraging private sector development, infrastructure development, security of energy supply and environmental sustainability.
Guarantees & Securitisation
The EIB provides guarantees for large and small projects to make them more attractive to other investors ; for senior and subordinated debt, either in a standard form or as a debt service guarantee similar to that offered by monoline insurers.
Beneficiaries can be large private and public projects or partner intermediaries providing SME financing.
Advantages of a guarantee
Depending on the underlying funding structure of the operation, a guarantee may be more attractive than one of our loans. It may either provide greater value-added or require lower capital charges. Under capital adequacy rules our guarantees provide a zero risk weighting to the guaranteed obligation.
The Loan Guarantee Instrument for Trans-European Network Transport (LGTT) is designed to guarantee medium term revenue risks from public-private partnership transport schemes. Risk sharing instruments are also used in the SME funding schemes JEREMIE and CIPschemes, as well as complementing the Risk Sharing Finance Facility (RSFF) which boosts research, development and innovation.
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EBRD - The European Bank for Reconstruction and Development
The European Bank for Reconstruction and Development (EBRD) is a multilateral development bank, using investment as a tool to help build market economies. Initially focused on the countries of the former Eastern Bloc, it expanded to support development in the democracies of 30 countries from Central Europe to Central Asia.
Despite its public sector shareholders, it invests mainly in private enterprises, together with commercial partners. The EBRD finances projects in sectors including energy efficiency, financial institutions, manufacturing, municipal infrastructure (which includes transport, schools, water supply, waste disposal), natural resources, power, property, tourism, telecommunications, information technology.
After the 2011 Arab Spring, the EBRD added four countries in the MENA region to a special multi-donor account: Egypt, Jordan, Morocco, and Tunisia. These countries are expected to become full recipient countries. The EBRD’s shareholders gave unanimous backing to the expansion of the Bank’s mandate, allowing future activities in the southern and eastern Mediterranean (SEMED) region, the latest region in which the Bank is working to support economic change in emerging democracies.
Guarantees are provided by the Bank to help borrowers gain access to financing.
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DHAMAN- The Arab Investment and Export Credit Guarantee Corporation
The Arab Investment & Export Credit Guarantee Corporation (Dhaman) is an autonomous Arab regional organization established in 1974 as a joint-Arab agency encompassing all Arab countries and a number of Arab financial institutions, with its main seat in Kuwait.
Dhaman aims to promote capital mobility into Arab countries and to enhance Arab exports worldwide. To achieve this goal, Dhaman provides guarantee coverage to Arab and non-Arab investments in its member countries against non-commercial risks, and to Arab export credit, against commercial and non-commercial risks.
The Dhaman Investment Guarantee scheme provides protection for Arab and Non Arab investments in member countries against non-commercial risks:
- Nationalization and expropriation,
- Military actions and civil disturbances,
- Breach of Contract.
Export Credit Insurance Covers exporters against Commercial risks including bankruptcy, insolvency and default of buyers (debtors), and Non-commercial risks which includes risks that are beyond buyer's control; assets expropriations, currency transfer risk, war or public civil disturbances, confiscation and nationalization.
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The Islamic Corporation for the Insurance of Investments and Export Credit
The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) is a member of the Islamic Development (IDB) Group, established in 1994 as an international financial institution with the aim of providing investment and export credit insurance for Islamic Countries as per the Agreement for the Promotion, Protection and Guarantee of Investment among Member Countries of the Organization of the Islamic Cooperation (OIC).
This Agreement provided that the OIC, through the Islamic Development Bank, establishes an Islamic Insurance Company operating under Shariah principles, to provide insurance products for investments and export credits.
ICIEC’s Political Risk Insurance is designed to help mitigate non-commercial risks such as “country/political risk” in the host countries. Guarantees provided by ICIEC cover :
- Currency Inconvertibility and transfer restrictions.
- War and civil disturbance.
- Breach of Contract.
- Non-honoring of Sovereign Financial Obligations.
- New investments or expansion of existing investments/projects.
- Investment not prohibited by Shariah.
- Investments being undertaken in a Member Country.
Tenor of Cover : Up to 20 Years
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Private Infrastructure Development Group
GuarantCo provides guarantees to lenders to support local currency finance for infrastructure projects in low-income countries, promoting domestic infrastructure financing and local capital market development.
GuarantCo offers partial guarantees which serve as credit enhancements to facilitate local debt instruments. Guarantees for single transactions currently range from the local currency equivalent of US$5 million to US$20 million, although the upper limit is expected to rise over the next two years to US$50m.
The guarantee cover available from GuarantCo for any single transaction is limited to a minimum local currency equivalent of USD 5 million – although lesser amounts can be considered for highly developmental projects – and a maximum equivalent of USD30 million. GuarantCo can provide up to 100% cover but this is only available in limited circumstances.
GuarantCo provides a variety of contingent products including partial credit and partial risk guarantees, first loss guarantees, tenor extension or liquidity guarantees and can provide joint guarantees or counter guarantees as may be required for a particular project. GuarantCo can cover debt and subordinated or mezzanine financing but not equity. Maximum tenor is 15 years.
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