The World Bank has unveiled significant changes to its guarantee business, with the aim of streamlining and expanding its offerings. Set to be implemented on July 1, the revamp involves the consolidation of its 20 guarantee solutions into a single platform under the Multilateral Guarantee Investment Agency (Miga). This move is designed to simplify the process for clients, who are mainly financial institutions, and to boost the issuance of guarantees to US$20bn annually by the end of the decade.
The need for such reform was identified by a private sector investment lab established by the World Bank in June of the previous year, which highlighted the critical role of political risk insurance in investment in renewable energy. By centralizing guarantee offerings and making them more accessible, the World Bank aims to eliminate redundant processes and invest in a more client-friendly experience. This includes expanding guarantee teams and training staff globally to ensure clients can easily access guarantees from anywhere.
The overhaul is expected to enhance the efficiency of deploying guarantees alongside other World Bank products, such as direct lending and support from the International Financial Corporation (IFC). This is anticipated to benefit a range of projects, particularly in energy transmission and water infrastructure.
The reform has been met with approval from key figures in the banking sector, with HSBC's chief executive, Noel Quinn, acknowledging the importance of such changes for scaling up sustainable investment. Similarly, Sim Tshabalala, the chief executive of Standard Bank, has expressed strong support for the new guarantee structure, highlighting its potential to attract more private sector investment into Africa's infrastructure.
Miga guarantees have traditionally supported commercial investments, project finance, and trade finance in developing countries with high credit risk. Recent initiatives include a €349mn guarantee for a trade finance loan led by Standard Chartered to an African development bank, as well as support for trade finance loans in Senegal and Côte d'Ivoire, and a risk-sharing agreement to facilitate trade finance in Ukraine.
While the World Bank's goal is to reach US$20bn in guarantee issuance by 2030, its president, Ajay Banga, emphasizes that this target is indicative of ambition rather than a ceiling, suggesting that achieving this goal swiftly will lead to even greater aspirations for the future. This strategic overhaul represents a significant shift in how the World Bank plans to engage with and support development projects globally, aiming to make a more substantial impact through streamlined operations and enhanced accessibility.
Source: GTR