World Bank Group Guarantee Platform

Description

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Context:

The World Bank Group (WBG) guarantee platform is open for business from today.

World Bank Group Guarantee Platform

It was initiated in July 2024.
The platform is housed at the Multilateral Investment Guarantee Agency (MIGA).
It brings together products and experts from the World Bank, International Finance Corporation (IFC), and MIGA for simplicity, efficiency, and speed.
It aims to boost WBG annual guarantee issuance to $20 billion by 2030.
It will serve as a one-stop-shop for all WBG guarantee business, providing the best guarantee solutions for clients to meet project needs and development priorities.
WBG clients can now choose from a simplified market-friendly menu of guarantee options.

The platform will provide three types of coverages:

credit guarantees for loans to the public or private sector;
trade finance guarantees for trade finance projects involving public entities; and
political risk insurance against non-commercial risks for private sector projects or public-private partnerships.

Purpose and Function of Guarantees:

Guarantees were designed to facilitate private financing by mitigating the risk of default on debt service by borrowers due to a host government's failure to meet contractual obligations.

Evolution of Guarantee Programs:

B-loan Program (1983): Introduced to allow commercial lenders to co-finance projects by purchasing participations in World Bank loans.
Expanded Co-financing Operations Program (1988): Replaced the B-loan program, focusing on partial guarantees to mobilize private finance for public and joint projects.
Private Sector Projects (1991): Guarantees expanded to support commercial financings for private sector projects, reflecting a global shift towards private involvement in infrastructure.

Types of Guarantees Established:

Partial Risk Guarantees (1994): Protect private lenders against defaults caused by a government's failure to meet specific project contract obligations. Available to both IBRD-eligible and IDA countries.
Partial Credit Guarantees: Introduced to protect against debt service defaults on public sector project loans, irrespective of the cause. Available only to IBRD-eligible countries.

Other Types:

Significance of the initiative

Scalable model

The new platform introduces a scalable model, prioritizing high-impact projects, thereby optimizing resource allocation, and facilitating growth.

Impactful solutions:

Using the collective expertise of the WBG, the platform will drive impactful solutions across diverse sectors, including energy access, preparedness, and climate action.

Financing

In fiscal year 2024, the World Bank Group issued approximately $10.3 billion in new guarantees using products that will be part of the platform: $8.2 billion from MIGA, $1.4 billion from IFC, and nearly $700 million from the World Bank.

World Bank groups:

The World Bank is an international organization dedicated to providing financing, advice, and research to developing nations to aid their economic advancement.
Headquarter: Washington, D.C.
The bank predominantly acts as an organization that attempts to fight poverty by offering developmental assistance to middle- and low-income countries.

Difference between World Bank Group’s bodies:

	World Bank	International Finance Corporation (IFC)	International Development Association (IDA)	Multilateral Investment Guarantee Agency (MIGA)	International Centre for Settlement of Investment Disputes (ICSID)
Purpose	Provides loans and grants to middle-income and developing countries for development projects and programs.	Supports private sector investment in developing countries to promote economic growth and reduce poverty.	Provides concessional loans and grants to the world's poorest countries to reduce poverty.	Promotes foreign direct investment by providing political risk insurance and credit enhancement.	Provides facilities for arbitration of investment disputes between governments and foreign investors.
Primary Focus	Infrastructure development, education, health, agriculture, governance, etc.	Private sector development, financial markets, infrastructure, advisory services, etc.	Poverty reduction, social services (healthcare, education), infrastructure (roads, water supply), institutional reforms, etc.	Infrastructure projects (energy, transport), manufacturing, agribusiness, service industries, etc.	Resolving disputes between governments and foreign investors regarding investment issues.
Financial Tools	Provides loans, grants, and technical assistance.	Provides investment and advisory services, equity investments, and loans to private sector projects.	Provides concessional loans and grants with low or zero interest rates and long repayment periods.	Provides political risk insurance, guarantees against non-commercial risks, and credit enhancement to encourage investments.	Facilitates arbitration and conciliation of investment disputes under international treaties and conventions.
Operational Strategy	Works directly with governments and agencies to implement large-scale projects and policy reforms.	Partners with private sector companies to mobilize private capital and expertise for development projects.	Focuses on countries with the greatest development needs, providing support through grants and low-interest loans.	Supports projects that cannot proceed due to political risks, offering protections to investors and lenders.	Administers arbitration proceedings impartially, ensuring fair and transparent resolution of investment disputes.
Membership	189 member countries including both developed and developing nations.	184 member countries, predominantly private sector companies and financial institutions.	173 member countries, focusing on the world's poorest countries.	183 member countries, providing political risk insurance and credit enhancement globally.	162 member countries, ensuring access to dispute resolution services for governments and investors worldwide.

Read in detail about world Bank here:

World Bank

Sources:

PRACTICE QUESTION

Q. With reference to the “World Bank Group Guarantee Platform” recently lauched by World Bank Group, consider the following statements:

The platform consolidates various guarantee products from the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) to streamline access for clients.
The initiative provides guarantees against disaster resilient projects among its member countries.
The platform offers only political risk insurance for private sector projects.

Which of the statements given above are correct?

(a) Only one

(b) Only two

(c) All three

(d) None of the above

Answer: a