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Managing MFI Political Risk: The Response and Potential of Political Risk Insurance OVERSEAS PRIVATE INVESTMENT CORPORA PowerPoint Presentation
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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 :

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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

slide2

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 finance

OPIC PROGRAMS

OPIC Finance

OPIC Investment Funds

OPIC Insurance

  • Provides capital to managed investment funds that support economic development in emerging markets
  • Provides political risk to cover equity or debt investments in MFIs
  • Provides medium and long-term financing to projects overseas
key risks identified by investors practitioners and regulators

Key risks identified by investors, practitioners

  • and regulators
Key risks identified by investors, practitioners and regulators

Oct./Nov. 2007

“Managing Growth”

April/May 2009

“Managing Risk”

Industry concerns moved from managing rapid growth to managing risk

Source: Microfinance Banana Skins Report 2009, CSFI, 2009

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Political Risks for MFIs

  • India-
    • Competition from Government
    • Forced closing of MFI branch offices
    • Threat of interest rate caps
  • Nicaragua’s NO PAGO MOVEMENT
    • Political Violence to MFI assets and staff;
    • Change in Law- Debt moratoriums
    • Governmental interference and competition
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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 investorsin 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.
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Highlights of OPIC’s Microfinance Contract

  • 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;
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OPIC’s Excellent Claims Record

  • 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)
leveraging private capital in microfinance transactions
Leveraging Private Capital in Microfinance Transactions

OPIC and other lenders are leveraging capital and staff by supporting investment vehicles that lend to MFIs

OPIC

PRI

MFI

Senior / sub debt

MIV Manager, Financial Intermediaries, etc.

(US eligible investors)

MFI

Loan

MFI

MFI

Equity Investment

MFI

Interest & Principal Repayment

MFI

Equity

Returns to Equity

MFI

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OPIC

For more information, visit our website:

http://www.OPIC.gov

CONTACT:

Ruth Ann Nicastri, Director for Political Risk Insurance

202 336-8590

RNICA@OPIC.GOV

Richard Greenberg, Senior Manager for Micro and Small and Medium Enterprise Finance, 202 336-8616

RGREE@OPIC.GOV