managing mfi political risk: the response and potential of political risk insurance overseas...
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Managing MFI Political Risk: The Response and Potential of Political Risk Insurance OVERSEAS PRIVATE INVESTMENT CORPORATION Ruth Ann Nicastri, Director May 25, 2010. Photos: Microfinance Insight Photo Contest. Overseas Private Investment Corporation (OPIC). OPIC Refresher : - PowerPoint PPT PresentationTRANSCRIPT
Managing MFI Political Risk: The Response and Potential of Political Risk InsuranceOVERSEAS PRIVATE INVESTMENT CORPORATION
Ruth Ann Nicastri, DirectorMay 25, 2010
Photos: Microfinance Insight Photo Contest
Overseas Private Investment Corporation (OPIC)
OPIC Refresher:
• OPIC was established as an agency of the U.S. government in 1971
• Projects have the backing of the full faith & credit of the U.S. government
• OPIC has a developmental mandate• OPIC is open in over 150 countries• Priority markets identified based on US Foreign
Policy
OPIC PROGRAMS
OPIC Finance
OPIC Insurance
OPIC Investment
Funds
• Provides political risk to cover equity or debt investments in MFIs
• Provides medium and long-term financing to projects overseas
• Provides capital to managed investment funds that support economic development in emerging markets
OPIC supports over 100 microfinance institutions across 30 different developing countries
Key risks identified by investors, practitioners and regulators
1 Management Quality2 Corporate Governance3 Inappropriate Regulation4 Cost Control5 Staffing6 Interest Rates7 Competition8 Managing Technology9 Political Interference
10 Credit Risk
1 Credit Risk2 Liquidity3 Macro-economic trends4 Management Quality5 Refinancing6 Too little funding7 Corporate Governance8 Foreign Currency9 Competition
10 Political Interference
Oct./Nov. 2007“Managing Growth”
Industry concerns moved from managing rapid growth to managing risk
Source: Microfinance Banana Skins Report 2009, CSFI, 2009
April/May 2009“Managing Risk”
Key risks identified by investors, practitioners and regulators
• Nicaragua’s NO PAGO MOVEMENT– Political Violence
to MFI assets and staff;
– Change in Law- Debt moratoriums
– Governmental interference and competition
• India-– Competition
from Government
– Forced closing of MFI branch offices
– Threat of interest rate caps
Political Risks for MFIs
P[ Political Risk Products• Currency Inconvertibility and Transfer
Protects (U.S.) lenders against default on scheduled debt repayment from MFIs due to host government action preventing currency conversion or transfer of funds.
Protects (U.S.) investors against the inability to convert or transfer local currency earnings from their MFI due to host government action.
• Expropriation Protects lenders against default on scheduled debt
repayment due from MFIS against unlawful host government acts against the MFI
Protects investors in MFIs against loss of investment due to unlawful host government acts against the MFI and blockage of remittance of funds or return of earnings.
• Political Violence Protects lenders against default on scheduled debt
repayment due from the MFI due to political violence in the host country against the MFI or its borrowers
Protects investors against damage to MFI assets due to political violence in the host country.
• OPIC conducted informal focus group discussions with various MIV’s to assess their risks;
• Based upon those conversations, OPIC added the following:– Coverage for change in law or regulations mandating
interest rate caps, or curtailing MFIs ability to lend to certain borrowers or excessive restrictions
– Coverage for Foreign Government actions that adversely affected the borrowers ability to operate their projects;
– Political violence that affects the MFIs or their borrowers/Temporary evacuation coverage
– Coverage for Foreign Government closings or takings of MFI branches;
Highlights of OPIC’s Microfinance Contract
• Total claims paid – 290 claims ($970 million)
Examples of Bank related claims• Inconvertibility: $2.6 million to
Caterpillar for inconvertibility of loan payments from Conferry, their Borrower, in Venezuela
• Expropriation: Discriminatory regulation; Taking of Bank Capital (Citibank Sudan)
• Expropriation: Denial of Justice- blocking intl. arbitration; obstruction of Lenders security (Bank of America – India – Dabhol)
OPIC’s Excellent Claims Record
MIV Manager, Financial
Intermediaries, etc.
(US eligible investors)
Loan
Interest & Principal Repayment
MFI
MFI
MFI
MFI
MFI
MFI
MFI
Senior / sub debt
Equity
Equity Investment
Returns to Equity
OPIC and other lenders are leveraging capital and staff by supporting investment vehicles that lend to MFIs
Leveraging Private Capital in Microfinance Transactions
OPIC PRI
OPIC
CONTACT:
Ruth Ann Nicastri, Director for Political Risk Insurance202 [email protected]
Richard Greenberg, Senior Manager for Micro and Small and Medium Enterprise Finance, 202 [email protected]
For more information, visit our website:
http://www.OPIC.gov