Credit Guarantees for Local Currency Finance
 

Credit guarantees are available for local currency debt to finance infrastructure projects in emerging countries around the world. 20% of the portfolio adopted by this source is targeted for housing and other forms of urban infrastructure such as water and sanitation.

The main aim is to help projects in poorer countries avoid reliance on hard currency financing by building capacity in their domestic markets to deliver viable and sustainable infrastructure financing solutions and assist with the alleviation of poverty.

Their equity comes from government aid budgets but is entrusted to a private sector manager to encourage a commercial and sustainable approach.

Advantages of local currency finance:

  • Financing in local currency allows a project developer to match their currency of revenue with currency of debt service.

  • Projects financed in foreign currencies carry devaluation and currency convertibility risks.

  • Involvement of domestic banks and institutions helps build capacity to finance further projects.

  • Local currency financing involves productive recycling of savings within country rather than increasing the country’s external debt burden.

  • Projects financed in US Dollars or Euro carry devaluation and currency convertibility risks.

The guarantee cover is available for any single transaction from a minimum amount of equivalent of US Dollars 5 million (although lesser amounts might be considered for highly developmental projects) and a maximum equivalent of US Dollars 20 million. Up to 100% cover can be provided but this will only be available in limited circumstances and when dictated by the market. Usually, the financing covered by a guarantee will be up to three times the size of the guarantee (30% to 70% cover), although this can be significantly for securitization transactions.

The guarantee cover scheme can cover debt and subordinated or mezzanine financing but not equity with a maximum of 15 years.

Several types of guarantees can be provided as follows:

  • Partial Credit Guarantees

  • Partial Risk Guarantees

  • First Loss Guarantees

  • Tenor Extension Guarantees

  • Liquidity Guarantees

  • Joint Guarantees

  • Counter Guarantees

Projects in all low income and lower middle income countries in Asia, Africa, Latin and Central America and the Caribbean are eligible for these types of guarantees. Below is a list of all these countries:

The guarantee cover scheme can support infrastructure projects developed by the following entities:

  • Special purpose vehicle or project companies

  • Private operating infrastructure companies

  • Privatized companies

  • Parastatals or public corporations

  • Municipalities

  • Projects from the following sectors can be considered:

  • Energy supply, including generation, transmission and distribution

  • Water/Waste services

  • Transportation

  • Telecommunications

  • Gas transportation, distribution and storage

  • Urban infrastructure

  • Mining, provided the financing is for related infrastructure services with access by third parties.

Other activities that impact positively on the development of the relevant country’s basic infrastructure, including the manufacturing of components used in infrastructure, such as cement and steel, and infrastructure associated with agribusiness.

Generally speaking, the guarantee scheme will support the construction of new facilities or the expansion or refurbishment of existing facilities.  In addition, support can be provided for the refinancing of existing facilities where cross border debt is replaced by local financing.

The guarantee scheme funds comes from government aid budgets but is entrusted to a private sector manager to encourage a commercial and sustainable approach.

Countries Covered

Projects in all low income and lower middle income countries in Asia, Africa, Latin and Central America and the Caribbean are eligible for these types of guarantees. Below is a list of all these countries:


 

Africa

 

 

 

 

 

Algeria

Ethiopia

Nigeria

Angola

Gambia

Rwanda

Benin

Ghana

Sao Tome & Principe

Burkina Faso

Guinea

Senegal

Burundi

Guinea-Bissau

Sierra Leone

Cameroon

Kenya

Somalia

Cape Verde

Lesotho

Sudan

Central African Republic

Liberia

Swaziland

Chad

Madagascar

Tanzania

Comoros

Malawi

Togo

Congo, Rep

Mali

Tunisia

Congo, Dem rep

Mauritania

Uganda

Ivory Coast

Morocco

Zambia

Djibouti

Mozambique

Zimbabwe

Equatorial Guinea

Namibia

 

Eritrea

Niger

 

 

 

 

Americas

 

 

 

 

 

Bolivia

El Salvador

Honduras

Colombia

Guatemala

Nicaragua

Dominican Republic

Guyana

Paraguay

Ecuador

Haiti

Peru

 

 

 

Asia & Oceania

 

 

 

 

 

Afghanistan

Laos

Sri Lanka

Armenia

Maldives

Tajikistan

Azerbaijan

Marshall Islands

Thailand

Bangladesh

Micronesia, Fed. States

Timor-Leste

Bhutan

Mongolia

Tokelau

Cambodia

Myanmar

Tonga

China

Nepal

Turkmenistan

Georgia

Niue

Tuvalu

India

Pakistan

Uzbekistan

Indonesia

Papua New Guinea

Vanuatu

Kiribati

Philippines

Vietnam

Korea, Dem. Rep.

Samoa

Wallis & Futuna

Kyrgyz Rep.

Solomon Islands

 

 

 

 

Eastern Europe

 

 

 

 

 

Albania

Macedonia, Former Yugoslav

Ukraine

Bosnia & Herzegovina

Moldova

 

 

 

 

Middle East

 

 

 

 

 

Egypt

Jordan

Yemen

Iran

Palestinian Adm. Areas

 

Iraq

Syria

 

 

Social and Environmental Impact

All projects to be considered must adhere to local and international environmental, social and health and safety standards.

 

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Samer Nassar & Associates