By Marc Jones
LONDON (Reuters) – A top World Bank group official has warned that the market for providing credit guarantees could become fragmented as a flood of new multilateral lenders starts offering them.
Junaid Kamal Ahmad, vice president for operations at the Multilateral Investment Guarantee Agency (MIGA), said the drive to fight poverty and climate change had pushed the development banking ecosystem to an “inflection point” when it came to loan guarantees.
He said that MIGA, which is part of the World Bank Group, had built up its expertise over 35 years and that multiple institutions springing up offering guarantees could potentially be detrimental.
“If it (credit guarantee market) gets fragmented we will be fighting each other on pricing and not be able to deliver the power of the guarantee instrument,” Ahmad said during an Atlantic Council webinar.
The kind of guarantees to which Ahmad was referring include credit enhancements or political risk insurance policies that pay investors back if the countries or companies that they have lent to run into trouble.
The World Bank Group has just laid out plans to consolidate its loan and investment guarantee structure in a bid to triple its annual guarantees to $20 billion by 2030, boost renewable energy investments in developing countries and tackle other global crises.
However, other top multilateral development banks (MDBs) are also looking to ramp up their credit guarantees as well.
At November’s COP28 climate summit, a consortium of MDBs including the European Investment Bank, African Development Bank, Inter-American Development Bank and the U.S. International Development Finance Corporation set up a task force to cooperate on things such as credit guarantees.
“Let me assure you it’s taken us 35 years to reach the type of capacity to be able to do guarantees,” Ahmad said. “If a world is suddenly going to be divided by multiple guarantee institutions, where will that capacity come from?”
(Reporting by Marc Jones; Editing by Susan Fenton)
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