World Bank Group Guarantee Platform
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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:
Sources:
- https://www.worldbank.org/en/news/press-release/2024/07/01/world-bank-group-guarantee-platform-goes-live?intcid=ecr_hp_sidekickB_2024-07-02-GuaranteePR
- https://www.projectfinance.law/publications/2016/april/world-bank-guarantees-for-private-projects/
PRACTICE QUESTION Q. With reference to the “World Bank Group Guarantee Platform” recently lauched by World Bank Group, consider the following statements:
Which of the statements given above are correct? (a) Only one (b) Only two (c) All three (d) None of the above Answer: a |