MIGA Guarantee Facility (MGF)

Objective and Additionality

The MGF aims to bridge the gaps where market and MIGA-arranged capacity for eligible non-commercial risks is not sufficient or available to crowd in private investment into PSW-eligible countries. MGF will provide coverage for a combination of political risk insurance (PRI) products, covering non-commercial risks such as expropriation, currency transfer restriction and inconvertibility, war and civil disturbance, and breach of contract on key project agreements covering government (sovereign and sub-sovereign/SOE) obligations. The MGF will participate in risk mitigation solutions executed by MIGA, to support private sector investments (i.e., debt and equity) in PSW-eligible projects.

The MGF provides additionality by increasing both the scale and scope of MIGA’s activities in PSW-eligible countries. This additionality will be demonstrated by an increased number of projects and associated volumes of transactions that MIGA will undertake beyond what is currently projected.1 The MGF will be utilized when existing MIGA PRI instruments are required to advance the project, but there is insufficient MIGA or market capacity to provide the coverage needed (e.g., where MIGA has reached exposure limits, or private market capacity does not exist, is insufficient or cost prohibitive). It would be particularly useful in the case of large-scale, systemically important transactions, programmatic approaches to sectors involving multiple projects, or multi-sector approaches.

Transaction financial mechanics

MGF will be deployed in two structures: (i) shared first-loss, and (ii) risk participation akin to reinsurance. The MGF will have an overall designated limit of up to US$500 million, with this limit being the total exposure of PSW under both structures. Claim amounts will be disbursed by IDA using MGF resources (through a risk sharing agreement with MIGA) to MIGA, upon a call on the guarantee by the beneficiary pursuant to a claim determination as per the MIGA contract.

Contact: Nabil Fawaz, Operations Manager, MIGA, nfawaz@worldbank.org


Illustration: Risk Sharing in Structures Involving (i) IDA-MIGA Shared First Loss Transaction; and (ii) Risk Participation akin to Reinsurance.

  • This facility would include risk-sharing or allocation of losses to a first loss position, and provides an added layer of reassurance to reinsurers covering investments against non-commercial risks.
  • PSW will step in and take on the role of a risk participantand provide MIGA with capacity pursuant to a risk sharing agreement that is akin to reinsurance.
  • The MGF would enable MIGA to augment its support to developing markets that already take up a significant share of MIGA’s economic capital today, including DRC, Afghanistan, and Cote d’Ivoire.

 


[1] Over the FY18-20 period, through structures with first loss and risk participation akin to reinsurance, every dollar of PSW resources deployed through MGF is expected to result in up to US$5 of private sector investment mobilized and co-financed in MIGA projects, similar to MIGA’s experience with the Conflict Affected and Fragile Economies Facility (CAFEF), but adjusted for expected higher risk markets and/or higher risk transactions.