MIGA, a member of the World Bank Group, has issued $497 million in guarantees to South Africa’s Absa Group Ltd. to help expand financing across seven countries in sub-Saharan Africa.
The guarantees are for up to 15 years on Absa’s investments into its subsidiaries in Ghana, Kenya, Mauritius, Mozambique, Seychelles, Uganda and Zambia.
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The guarantees provide coverage on mandatory reserves held by the domestic subsidiaries in their respective central banks.
Growth prospects in sub-Saharan Africa require greater promotion of private investment and risk-taking and deepening financial systems by expanding credit for local and foreign investors.
In low-income and lower-middle-income countries in the region, only 29% of people had an account as of 2017. With the exception of Mauritius, the countries supported by the MIGA guarantees have credit-to-GDP ratios averaging 23%, well below the regional average of 47%.
MIGA anticipates climate co-benefits
MIGA’s coverage reduces the regulatory risk weighting of mandatory reserves on a consolidated level, thereby freeing up capacity and enabling the subsidiaries to provide additional domestic lending. The subsidiaries are expected to increase financing for corporates and SMEs, and on projects with potential climate co-benefits.
Hiroshi Matano, MIGA’s executive vice president, said: “While essential for regulatory reasons, reserves held with central banks consume consolidated capital and do not generate income for subsidiaries and their international parent.”
“MIGA is freeing up risk capacity associated with the reserves and helping make more financing available for corporates and small and medium enterprises,” he added.
The climate finance component of this project is significant. With the backing of these guarantees, Absa’s subsidiaries in Kenya and Mauritius are expected to lend $325 million in support of new climate finance transactions.
“We are pleased to work with MIGA. Their guarantees allow us to provide additional funding in our subsidiaries in Ghana, Kenya, Mauritius, Mozambique, Seychelles, Uganda and Zambia. We are a founding signatory to the UN’s Principles of Responsible Banking and aim to play a shaping role in society, to enable sustainable economic development in our presence countries and to increase our funding to environmental and sustainable opportunities,” said Jason Quinn, Absa Group’s financial director.