Summaries of proposed guarantees are provided prior to Board consideration and before final contract signing, and they are therefore subject to change. Project briefs are disclosed after Board consideration and contract signing and reflect the terms of the project at the time of contract signature. Environmental and Social Review Summaries are provided for projects assigned an Environmental Assessment Category of A or B.
- Project name
- ProCredit Group Central Bank Mandatory Reserves Coverage
- Project ID
- Fiscal year
- Guarantee holder
ProCredit Holding AG & Co. KGaA
- Investor country
- Host country
- Environmental category
- Date SPG disclosed
- October 28, 2011
- Project Board date
- December 01, 2011
- Gross exposure
- $4.0 million
- Project type
On December 22, 2011, MIGA issued a guarantee of €3 million (about $4.0 million equivalent) to cover an investment by ProCredit Holding AG & Co. KGaA in its subsidiary in Ukraine. The coverage is for a period of up to 10 years against the risk of expropriation of funds for mandatory reserves held by the subsidiary in the central bank of its jurisdiction.
MIGA provided coverage of $5.6 million under the project in fiscal year 2011. This additional coverage brings MIGA’s exposure under the project to $9.6 million.
This project is part of a master contract that MIGA has issued. ProCredit Holding AG & Co. KGaA is headquartered in Germany and is the parent company of 21 banks (ProCredit group). The ProCredit group is a provider of finance to some 750,000 very small, small, and medium enterprises in Latin America, Eastern and Central Europe, and Africa. Throughout the world, banks are required to maintain mandatory reserves with the central banks of their respective jurisdictions. Currently, the ProCredit group’s capital adequacy ratio (CAR) is calculated according to Basel II, but in the future it will also be calculated according to the German Banking Act. Under this act, at a consolidated level, reserves deposited at the various central banks can attract a risk weighting of 100 or even 150 percent depending on the country. This risk weighting determines the amount of equity required to maintain a specified CAR in accordance with the German Banking Act.
ProCredit Holding AG & Co. KGaA approached MIGA to obtain capital relief from the capital adequacy ratio requirements. By obtaining MIGA’s insurance against the risk of expropriation of funds, the risk weighting for mandatory reserves held at the central bank can be reduced. A lower risk weighting would allow ProCredit Holding AG & Co. KGaA to free up equity currently tied up for CAR maintenance purposes, thereby allowing these funds to be injected into its subsidiary banks. This in turn will allow ProCredit Holding AG & Co. KGaA’s emerging market subsidiary banks across its network to increase its lending activities.
MIGA’s support will allow ProCredit Holding AG & Co. KGaA to direct equity to subsidiaries with the greatest need. The additional services these banks will be able to offer will help stimulate growth, generate employment, and reduce poverty.
MIGA’s support for this project is aligned with the World Bank Group’s microfinance strategy which includes improving the supply of microfinance in large, but underserved markets; enhancing deposit capacity by assisting microfinance institutions in savings mobilization; capacity building; creating and shaping markets; and fostering innovation.