On April 7, 2017, MIGA issued a $ 450 million guarantee covering a US-dollar denominated loan accompanied by a USD-ZAR cross-currency swap by Standard Chartered Bank of the United Kingdom (SCB-UK) identified to Land and Agricultural Development Bank (Land Bank) in South Africa. The coverage is up for a period of up to 11 years against the risk of non-honoring of financial obligations by a state-owned enterprise (NHSOE). The MIGA guarantee on the accompanying swap transaction is for an amount up to US$150 million.
Land Bank is a development bank wholly-owned by the Government of the Republic of South Africa. The bank provides various financial products, notably medium-term loans to South Africa farmers; approximately 85 percent and 15 percent of the bank’s loan book consists of agribusinesses that provide inputs/services to farmers and medium-to-large scale commercial famers, respectively. Land Bank also administers public interest programs, such as drought relief schemes and flood assistance programs on behalf of the government.
Under this proposed project, SCB-UK and other potential lenders will extend a loan facility denominated in US dollars to Land Bank for asset liability management purposes, as well as on-lending in accordance with its mandate. The accompanying USD-ZAR swap arrangement would enable Land Bank to repay the SCB-UK’s loan without facing a currency mismatch.
This is a category FI-2 project under MIGA’s Policy on Environmental and Social Sustainability. The rationale for categorization is based on Land Bank’s current portfolio and the proposed use of funds for the MIGA guaranteed facility to support smaller farmers and well-regulated agribusinesses in South Africa. The financing guaranteed by MIGA will be used to fund business activities that have potentially limited adverse environmental or social risks or impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures. Land Bank has a comprehensive Environmental and Social Management System that was recently updated. Land Bank complies with the requirements of MIGA’s Performance Standard 2 on Labor and Working conditions.
Reducing poverty and tackling inequality in South Africa will not be possible without successful rural and agriculture development throughout the country. One of the major obstacles with agricultural development in the country is the farmers’ lack of access to affordable financing (e.g. unknown smallholders, farmers without assets to post as collateral to obtain financing, etc.). This proposed project would support a government-owned development finance institution whose sole mandate is to provide financing for both agricultural and rural development in South Africa. Supporting Land Bank’s efforts would therefore enable more South African farmers to gain access to affordable financing and stabilize the country’s agricultural sector.