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Project Brief

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
9987
Fiscal year
2012
Status
Active
Guarantee holder
ProCredit Holding AG & Co. KGaA
Investor country
Germany
Host country
Serbia
Environmental category
FI
Sector
Banking
Date SPG disclosed
October 05, 2010
Project Board date
November 23, 2010
Gross exposure
 $80.6 million
Project type
Non-SIP

View Summary of Proposed Guarantee


On July 28, 2011, MIGA issued a guarantee of $80.6 million to ProCredit Holding (PCH) covering its investment in its subsidiary in Serbia. 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 was previously covering a total of $4.4 million under the project. The additional coverage of $80.6 million complies with ProCredit’s request to convert outstanding capacity to current coverage in order to consolidate all its political risk insurance requirements under the MIGA framework.

This project is part of a master contract that MIGA has issued. PCH 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.

PCH has 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 PCH 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 PCH’s emerging market subsidiary banks across its network to increase its lending activities.

MIGA’s support will allow PCH 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.

 
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