Risk is all around us, an inherent part of life. And in the world of development, there are also risks, including war, civil disturbance and expropriation.
In this episode of The Development Podcast, we take a deep dive into the work of ¨C home of the new ÐÓ°ÉÂÛ̳ Group Guarantee Platform. Its work with the private sector gives investors the confidence to build power plants, water treatment plans, hospitals and more, unlocking much-needed capital for development.
Join us as we hear from , MIGA Vice President of Operations, and Maira Lelis, Farmer in Brazil.
Tell us what you think of our podcast . We would love to hear from you!
Transcript
[00:00] Lindy Mtongana: Welcome to the Development Podcast with me, Lindy Mtongana. Today, we're looking at something that is all around us, even an inherent part of life, and that something is risk. We take risks every day; when we get into a car, when we cross a road, when we write a difficult email to a colleague. We calculate these risks often without even knowing we're doing it, and sometimes when we know we're going to take one, we find ways to reduce or mitigate that risk, be it a bike helmet, car insurance, or something else. You get the picture. In the world of development, there are also risks, and today, we'll be delving into a critical part of the ÐÓ°ÉÂÛ̳ Group, exploring risk and the rewards risk can reap when managed. At the heart of it, the . So, stick with us because MIGA plays a vital role in international development. We'll explore what MIGA does and how it works with private sector investors in emerging economies to make things happen.
Junaid Kamal Ahmad: When Egypt did in fact open the solar park and we de-risked it, the companies there were able to raise money at a rating that was six notches better than the sovereign rating of the country.
Lindy Mtongana: How the ÐÓ°ÉÂÛ̳ Group Guarantee Platform, which is housed at MIGA, supports jobs and livelihoods. We'll also hear from a farmer in Brazil who has transformed her business thanks to loans to implement conservation agriculture.
Maira Lelis: Healthy soil means healthier food. The soil is the gift God gave us. Our mission is to feed the world.
Lindy Mtongana: Now MIGA Guarantees are backing a program to spread these innovations all around Brazil. The Development Podcast from the ÐÓ°ÉÂÛ̳ Group. Think of a country that has been suffering from political instability, perhaps recovering from a conflict. If you were a private sector investor deciding if you'll back, say, a new power plant, you'd have some big questions. What if political instability returns? What if your investment isn't secure due to upheaval? You know this investment is good for the country, good for your company... If the risk can be somehow insured against. Well, that's where MIGA comes in. It can provide a guarantee so that if things take an unexpected turn, the value of your investment is protected. One kind of guarantee is insurance against political risk. That could be government expropriation, war, civil disturbance, breach of contract, and more. At the core of MIGA is the idea of private capital for public good. Guarantees promote foreign direct investment in the developing world, which is a key driver of growth and higher living standards. And of course, private sector investments in projects like power plants, water treatment plants, schools, hospitals, and transport systems, all made possible by guarantees, create jobs. I hope you're still following. You are? Good. Stick with me, because there's another part to this explainer, and that's the , founded one year ago. This platform streamlines applications for these guarantees from the private sector, bringing together all of the guarantees from around the institution, essentially part of a move to speed up and make the ÐÓ°ÉÂÛ̳ Group's work more efficient. Okay, well done. You made it through this race around MIGA. There's a lot more to it, and we'll be getting into more details of MIGA in just a few minutes.
[03:46] Lindy Mtongana: But first, let's hear about these guarantees in practice, and a project supporting agribusiness, micro, small, and medium-sized enterprises in Brazil. MSMEs for short employ nearly three quarters of workers in emerging markets and developing economies. Creating more and better jobs depends on them. Sarah Treanor found out more.
Sarah Treanor: Every day is busy for Maira Lelis. Her farm is a hive of people working. You might be able to hear the sound of grain being poured from giant spouts, ready to be put into sacks and sold. She and her employees are passionate about food production.
Maira Lelis: Healthy soil means healthier food. The soil is the gift God gave us. Our mission is to feed the world.
Sarah Treanor: And about ensuring that her farm, called Santa Helena, is embracing climate-friendly practices known as conservation agriculture.
Maira Lelis: Here at Santa Helena, we have worked hard on the soil. The system we used is called no-till farming. We plant on top of straw and covered soil.
Sarah Treanor: Conservation agriculture includes no-till farming, crop rotation, and cover crops. These methods prevent the release of carbon dioxide and also reduce the need to use fossil fuel-powered machinery on the farm. And there are other benefits too, like drought-proofing.
Maira Lelis: We can see that all the rainwater has already formed channels under the soil so the plant can absorb more. So we use less water.
Sarah Treanor: Conservation farming requires complex technology and specialized equipment, and these require investment. That's where the ÐÓ°ÉÂÛ̳ Group's Guarantees come in. A guarantee project is helping farmers like Maira adopt these practices and adapt their farms. MIGA-guaranteed loans from global banks to Banco do Brasil protect lenders against certain risks. Banco do Brasil in turn makes loans to small and medium-sized farmers at lower rates, thanks to the guarantee. Agriculture is a critical part of Brazil's economy and a significant employer, accounting for just over 16% of jobs and 8.4% of GDP. However, it also contributes a lot of greenhouse gas emissions. It's the single largest emitter in Brazil. Adapting to climate-friendly production methods is key to ensuring the wealth of Brazil's farmers and the health of the planet, as Maira knows all too well.
Maira Lelis: We feed people through our work and the responsibility is so great. The producer practices responsible agriculture and the world needs to know this.
Lindy Mtongana: A great, there. And of course, agribusiness, as our regular listeners know, is one of these sectors that the ÐÓ°ÉÂÛ̳ Group has identified that could generate local jobs at scale.
[07:01] Okay, so we've learned a bit about what MIGA means and where it sits in the ÐÓ°ÉÂÛ̳ Group, but let's find out more. . He joined me in the studio here in Washington, DC. Junaid, it really is a great pleasure to have you on the Development Podcast today.
Junaid Kamal Ahmad: The pleasure's mine.
Lindy Mtongana: Well, many of our listeners of course are familiar with the ÐÓ°ÉÂÛ̳'s traditional lending model, but guarantees are somehow a little less understood. So, perhaps you could just start by unpacking the distinction for us, and explain why guarantees matter, particularly in the context of today's development financing landscape.
Junaid Kamal Ahmad: I think it's a brilliant question, and one that I really appreciate because until three years ago when I joined MIGA, I'd spent 30 years in what you would call the lending part of the ÐÓ°ÉÂÛ̳ Group, and now I'm in the guarantee part of the ÐÓ°ÉÂÛ̳ Group, which I call the leveraging bank. So, let me unbundle that for you. The traditional model of development finance, the one that the Bretton Woods Institutions created right after World War II, was we were given an equity on the basis of that equity backed by several countries. We would go out and borrow on our AAA rating and we would on-lend to a country, and it's our lending that creates the projects, it's our lending that supports institution building. But if you look at the development challenge, it is so vast that our lending just does not have enough finance to really back that up. Where is all that money? You see that in the market, in the financial market. So, the question is how can we draw the financial markets into development? And that's where the whole idea of, if we could de-risk, if you will, the development game for financial players, they would come in their scale. So, the financial markets out there is what we want to tap, and that's what the guarantees do. The guarantees de-risk for the financial markets so they can come in. And the de-risking here is very specific. It de-risks political issues, not commercial issues. So, if you're a financier or a business going into a country and you made a bad choice and your business went bust, tough luck. Entrepreneur, you made a shot, you didn't make it. But if you went in and government suddenly changed the rules of the game on you, that's a political risk, and that's what we de-risk. Regulatory uncertainty, political uncertainty, investment uncertainty related to policy choices, if you will. That's what we de-risk.
Lindy Mtongana: Now, you've been known to say before that if you fix the risk, the financing will come, and it's both catchy and compelling, but what does it actually look like in practice? Perhaps you could give us a tangible example that really illustrates this principle, and perhaps ties into the ÐÓ°ÉÂÛ̳ Group's agenda and focus on jobs.
Junaid Kamal Ahmad: Sure. So, let's begin with an example of a guarantee that we provided that leads to the jobs' story. In Egypt, for example, Egypt decided to create Africa's largest solar park. So, it brought in private investors to produce electricity using solar energy. That electricity is being sold to a public distribution company in Egypt, which then releases that electricity to firms, to households. Now, this access to electricity, this infrastructure is essential for jobs. Without electricity, you're not going to get firms to grow. Without electricity, you're not going to get schools to function. So, the human capital side gets affected. Now, when the private sector came in to invest in the solar park, it began to ask the question, "We're going to be selling our electricity to a public company. What ensures that that public company will pay us on time for the electricity we produce? Or let's take it one step further. The profit that I will make as a company, I'll make some profit, I'm going to repatriate it back to my headquarters. What if government of Egypt suddenly put in a constraint that I couldn't transfer the money, out of the blue?" So, these are the type of risks that we want to come in and ensure that the private sector isn't facing. So, the private sector believes that there might be government interference, there might be, God forbid, political violence, war and civil disturbance. A company can't de-risk itself against those. So, we come in and we say, "Should those things happen, we will come in and intervene and pay you, the company, while we will work with government to address the issue." So, that's a real example. In the case of Egypt, when Egypt did in fact open the solar park and we de-risked it, the companies there were able to raise money at a rating that was six notches better than the sovereign rating of the country, right? And that's how much our, if you will, insurance or de-risking tools actually gave as a benefit. It resulted in lower cost of capital, which meant lower price of electricity, which gave that boost to Egypt, in terms of, as you said, jobs.
Lindy Mtongana: And I'm curious about what you've alluded to in terms of risky environments or political risk environments. In often cases you look at fragile or conflict-affected areas, and these are spaces in which investment is most needed, but least likely to reach. How does this often play out in certain contexts, like Africa for instance?
Junaid Kamal Ahmad: Well, two things. One is I truly believe that the risks that Africa faces are far less than the perception of that risk in the markets. And I think that both the countries, as well as we as multilaterals, need to do a much better job at showing that the risks that people are worried about, "Will I get paid for the contract I put in?" "Will there be an exchange rate failure that would prevent me from returning my money to headquarters?" The perception of that risk, in my opinion, especially for sub-Saharan Africa, is much higher than the reality. And that's where, I think, the guarantee instrument of multilaterals like the ÐÓ°ÉÂÛ̳ MIGA, that's where we play, I think, an important game. We come in and we try to bridge that perception and that, over time, within 2, 3, 4, 5 years, if outside they say, wait a second, there hasn't been a problem, why do we need MIGA? And MIGA leaving or exiting the project is a sign of success.
[13:45] Lindy Mtongana: That's very interesting indeed. Well, of course MIGA has been innovating over the past couple of years, and what we've seen now is the development of the Guarantee Platform. So, let's talk about that for a moment. What makes this platform such a significant step for the ÐÓ°ÉÂÛ̳ Group, and why do you believe it has the potential to reshape how we approach financing for development?
Junaid Kamal Ahmad: Let me proudly say a few things about MIGA, and then I'll say a few things about the Guarantee Platform. MIGA was created in 1988. It's the youngest of the ÐÓ°ÉÂÛ̳ Institution. There's the ÐÓ°ÉÂÛ̳ proper, which is the IBRD, IDA, and then there's IFC, which deals directly with private players. So, MIGA was created in 1988, and it was the genius of Ibrahim Shihata, who was then our general counsel, who said, "There will come a point when markets will have to finance development more than a multilateral borrowing and on-lending." So, MIGA was created, and we were given $366 million in terms of equity, which is a tiny bit of money. It's one loan of a ÐÓ°ÉÂÛ̳, if you will. That $366 million, and we've never been capitalized ever since. ÐÓ°ÉÂÛ̳ got its capitalization, IFC got its capitalization over time. We never got any more than that $366 million. That has been converted to over $80 billion of guarantees since 1988. So, for every $1 of our capital that we put into a guarantee, we crowd in $17. That's our ability to leverage. But we don't stop there. For every dollar we guarantee, we resell 70% into private reinsurers. That's how we were able to recycle that $366 into more than $80 billion of guarantees. So, when Ajay Banga came in, he said, "I have a secret weapon. It's called MIGA, but the problem is it's too secret." So, he comes in as president at a time when this inflection of development finance has happened. And in discussions with the G20, which I think was the first group that had an experts group that said, "We really need to use the guarantees to leverage market finance," followed by the Private Sector Investment Lab, which Ajay Banga put together, also put its weight behind the idea of a guarantee. And this is where Ajay Banga said, "Hold on, the ÐÓ°ÉÂÛ̳ has a guarantee instrument, IFC has its own guarantee instruments, and then there's MIGA that has its guarantee instruments. Outside in the market, private investors don't understand the difference of one over the other. Countries don't know which one to use. So, what if we brought it all together into a guarantee platform, a one-stop shop?" That was the creation of the Guarantee Platform. But there's something else that's very important about the Guarantee Platform; it's the first step towards actually enabling the ÐÓ°ÉÂÛ̳ Group to work as a ÐÓ°ÉÂÛ̳ Group by enabling us to work across balance sheets. So, let me give you an example. Cote d'Ivoire came to us and said they would like to use a policy-based guarantee to refinance some expensive debt that they had. So, we gave a guarantee in which it brought in cheaper finance to refinance an existing loan. That gave Cote d'Ivoire some savings. They used that savings to, in fact, finance additional expenditures in schools, just from the savings of the guarantee program. And that was an IBRD/IDA-based guarantee. The second phase of it was Cote d'Ivoire said, "We want to put our money into sustainability-linked loan on ensuring forestation, ensuring water management." And so they asked us to go into the market, again guarantee private finance. This time what we did was we said a percentage of it would be backed by IBRD, another percentage would be backed by MIGA. That brought down the price by another 200 basis point from the original IBRD guarantee. So, the combination, which we would not have done before had we not brought the teams together, we did it and that had a huge impact on Cote d'Ivoire. They were able to get loans of up to 15 years from the market, 10-year grace period, at 200 basis point lower than the IBRD guarantee itself. That's the power of the Guarantee Platform.
[18:26] Lindy Mtongana: I'm curious for you, having spent 30 years with the bank, three years now at the helm of MIGA, what comes to mind when you think about the impact of the work that you do, where you say to yourself, "This is why I do it"?
Junaid Kamal Ahmad: Well, I'm from Bangladesh, and my family comes from a village deep in the south. And every time I go back home, I go to the village. Last time I went, I went with my father, who had been a government official, and we went to the village. And as we entered the village, the roads were absolutely spotless. I mean, it was really well-built road, because each year would come, the roads are muddy, it's very difficult to get into the village. We got there and we were met by the chairperson of the village. And I asked, "What's different for you today?" They said, "You see that road? We were able to get an IDA loan, and we won that IDA loan in a competition, and today I have that road." So I said, "What difference does it make?" He said, "The big difference is at a time of rainfall, people are still able to go back and forth with the market, number one. Number two, the health clinic is about a few miles from here. During the flooding season, it's impossible for us to reach that health. Women that are about to give birth aren't able to cross the... Now we're able to cross the road. What a big difference it has made in our lives." Everything that I've talked about, balance sheets, crossing balance sheets, guarantees, these are technical terms, but this is not why we are here. We are here because we want the light to be lit in a school so a young child can learn. We want, in a public space, security so that women can get into buses that can take them to their jobs. We want a sense of security in a country that jobs are being created. We want foreign direct investments to come in to invest in Nigeria's electricity, in Burkina Faso's waterways, in my country's roads, right? That's what we are here for. When I see that in Colombia, because of our guarantees, 40,000 small and medium enterprises are able to get access to loans, that is an incredible story.
[20:56] Lindy Mtongana: What sticks out to me is going back to the places that most need investment and the ones that are least likely to get it, and the impact that it has. I wonder how the Guarantee Platform connects then to that jobs agenda?
Junaid Kamal Ahmad: I want to step back in order to answer this very important question. If you think about the time of Jim Wolfensohn, when Jim Wolfensohn came in, there was a sense of "50 Years is Enough" campaign that was going on regarding the ÐÓ°ÉÂÛ̳ and indeed multilateral development institutions. And there was a sense that we did not worry about social environmental impact. And one of the contributions that Jim Wolfensohn did was he changed that narrative. He said, "This institution not only worries about infrastructure, big projects, it worries about the social fabric of a nation, the environmental fabric of a nation." Fast-forward to Ajay Banga. Ajay Banga comes in and he faces a big challenge, that the demand on multilateral institutions is huge in terms of development finance. Whether it's the climate story, whether it's the SDG story, the growth story. He looks at it and he says, "One of the things that we have to do is ensure that people are getting jobs and they're getting good jobs. Because around the world, we're seeing political tensions, we're seeing fragility." And he positions that dialogue, if you will, of today's challenge, and saying, "What is it that we need to do?" And he says, "You need infrastructure, you need regulatory certainty, government policy certainty, and you need private sector finance. That's where the big story is." And he then begins to ask the question, "What is it in the way we are structured and the way we work that's preventing us from doing it?" And that's the whole idea of the One ÐÓ°ÉÂÛ̳ Group. Let's bring this force together and see if we can deliver on jobs. And I think that that's the shift that we're beginning to see today in the ÐÓ°ÉÂÛ̳. And he's very realistic in saying that the path to jobs is a path through infrastructure, through ensuring regulatory and policy certainty, and bringing in the power of private finance and private capacity.
Lindy Mtongana: Junaid, many thanks. Really good talking to you. Well, that's about all we have time for. I hope you've enjoyed this quick dip into W. Now, if you'd like to learn more about why the ÐÓ°ÉÂÛ̳ Group sees job creation as key to ending poverty and boosting shared prosperity, check out my latest episode of . I sit down with Ms. Dagmawit Moges Bekele, Director of the AU Peace Fund Secretariat. She shares her inspiring career journey from a student communications officer at a local NGO to becoming Ethiopia's first female transport minister, and now leading efforts to fund peace building across Africa.
Dagmawit Moges Bekele: The issue of peace and stability is not the sole responsibility of government. Private sector has a stake, because peace and security and stability is a prerequisite for any investment and for any business, because private sector engagement means employment. It's job creation.
Lindy Mtongana: That's My First Job on IFC Audio Stories, available wherever you get your podcasts. And we hope you'll join us very soon for another episode of the Development Podcast. Don't forget to like and subscribe. Thank you for listening.
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The ÐÓ°ÉÂÛ̳ is one of the world¡¯s largest sources of funding and knowledge for low-income countries. Its five institutions share a commitment to reducing poverty, increasing shared prosperity, and promoting sustainable development on a livable planet.