World Bank arm open to $8 billion infra loan cover

In an interview, Junaid Kamal Ahmad, vice-president, operations at the bank’s Multilateral Investment Guarantee Agency (MIGA), said the agency’s focus on underwriting loans aligns with India’s infrastructure development strategy at the national and sub-national levels, covering sectors like logistics, transport, electricity and water.

As a start, the Dedicated Freight Corridor Corporation of India Ltd (DFCCIL) last week received MIGA’s guarantee for up to $132 million of loans from MUFG Bank of Japan for up to eight years.

Ahmad, who was earlier country director for the World Bank in India, said MIGA may also stand guarantor for municipal bonds, allowing better ratings of these instruments and bringing global capital to the local bodies.

MIGA’s credit guarantee plan comes as a shot in the arm for state-owned infrastructure developers, as it opens a new window for them to secure overseas loans and diversify beyond direct lending by multilateral development banks (MDBs) such as the World Bank, Asian Development Bank, etc. “MIGA doesn’t require a counter-guarantee from the central government, which MDB loans require," said Ahmad.

The World Bank Group has two other lending arms. The International Development Association (IDA) lends to the world’s poorest countries, while International Bank for Reconstruction and Development (IBRD) lends to middle-income and creditworthy low-income countries.

“MDB loans will have a single borrower limit," said Ahmad, explaining how Indian infrastructure developers could tap long-tenor private capital at attractive rates using MIGA’s guarantee. “A country like India, because its lending went from IDA to IBRD, and in IBRD it has been borrowing significantly and would begin to touch the single borrower limit, at that stage, the ability to use a leveraging tool like ours, which doesn’t require a counter guarantee of the central government, enables a country like India to go into the market using the leveraging tool."

Data available from the World Bank shows 93 active IBRD financing and seven IDA financing projects in India.

India set up a National Infrastructure Pipeline (NIP) in 2019 that envisages an investment of $1.4 trillion ( ₹100 trillion) over a five-year period to build infrastructure and help the country achieve a gross domestic product (GDP) of $5 trillion. Financing this requirement has been a challenge, which agencies like MIGA are trying to address. As of now, it is unclear whether the NIP, which closes in 2025, will be extended.

Ahmad said MIGA has prudential limits on single-country exposure within its portfolio, and its capacity to support any individual country depends on its capital base and ability to use reinsurance. “As guaranteed loans are repaid, our capital be recycled into new guarantees in that country," he said. In the case of India, MIGA is almost at ground zero in terms of potential and because of MIGA’s leveraging ability, one could easily look at growth of $7-8 billion of market finance underwritten by MIGA to flow into India over the next few years, Ahmad said. “And this is a conservative estimate as private fund flows backed by us could rise further depending on our capital enhancement and repayments," Ahmad said.

“Another area that we’re beginning to look into is India’s municipalities that are looking to go into the market. We’re looking at whether we would be able to enhance the ability of municipalities to go into the market. We are driven by the development strategy of India, but it would tilt more towards the infrastructure sector, whether it is through state-owned enterprises (SoEs) or through municipalities that are financing large projects through bonds or otherwise."

Ahmad said MIGA’s model would help countries like India that are fast graduating from low middle-income countries to middle-income countries to meet the huge needs of capital for infrastructure creation that cannot just come from the traditional route of MDB lending. “The traditional model has been nations going to MDB’s for long-term borrowings. But developing economies are making deep investments for economic growth, energy transition and digital transitions. There is not enough development finance to actually support these investment needs."

“Nations are looking at capital markets for additional funds. The question then arises whether MDBs like the World Bank can shift from being lending institutions to becoming leveraging institutions, especially for nations moving to becoming middle income countries. It is here that MIGA is helping to de-risk private capital that needs to flow into big needs of infrastructure and other sectors and fulfilling their requirement for cheaper and long tenor loans," he said.

MIGA was set up in 1988 as a member of the World Bank group to promote cross-border investments into developing economies by providing guarantees. Since its creation, MIGA has issued over $76 billion in guarantees across 123 developing countries, supporting more than 1,000 projects. In India. MIGA issued its first guarantee in 1997 for a $9.7 million telecom project.