Africa Energy Indaba

Co-guarantee Platform Set Up To Back Risk Mitigation Transactions in Africa

  • The initiative plans to address the perceived high investment risk across the continent and the lack of capacity of traditional lenders to provide risk mitigation products for projects.
  • IPP energy projects in particular fail to get off the ground due to a lack of debt guarantees from government treasuries on the continent.
  • The new platform is intended to increase the volume of insurance and guarantee solutions available to project sponsors and their bankers in a market-responsible manner.

The African Development Bank alongside Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), African Trade Insurance Agency (ATI) and GuarantCo, on Wednesday entered into a Memorandum of Understanding for a Co-Guarantee Platform to back risk mitigation transactions.

The bank and its partners created the Co-Guarantee Platform for Africa, an innovative and collective de-risking instrument, to address the perceived high risk across the continent and the lack of capacity of traditional lenders to provide risk mitigation products for projects.

The platform is intended to increase the volume of insurance and guarantee solutions available to project sponsors and their bankers in a market-responsible manner.

The objective is to mobilise greater amounts of investment that would otherwise not take place in the region in the absence of affordable risk mitigation products. The platform is expected to enhance the relevance of the respective institutions’ instruments in the region by implementing joint risk mitigation transactions.

Speaking about the bank’s rationale for the Platform, Akinwunmi Adesina, President of the African Development Bank Group said, “There are many guarantee providers that can offer various types of credit enhancement and risk mitigation instruments in Africa, but cooperation among them has been either non-existent or on an ad hoc basis. Hence the need for a more formal collaboration among guarantees providers to maximize the use of their products in Africa.”

These four initial partners are financial institutions with strong experience operating on the continent, keen to participate in order to cooperate and create synergies with other development and commercial institutions in an effective and market-responsive manner.

The platform is open to more participants including official development institutions and the private sector.

Author: Babalwa Bungane

This article was originally published on ESI Africa and is republished with permission with minor editorial changes.

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