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This article is sponsored by The West African Development Bank
The innovative and unique nature of this instrument lies in the combination of a subsidized loan offer with a parametric insurance product. Such project will enable BOAD member countries to bring forward their climate investments and projects whilst building greater resilience. In the event of a natural or health disaster exceeding a predefined threshold such as drought, flooding, epidemic or pandemic, the insurance mechanism will be triggered waiving either 50% or 100% of the annuities of the loan portfolio payable by the borrower (the four pilot countries) during the coverage period.
The insurance mechanism therefore indirectly provides financial assistance, should the need arise, without affecting the underlying loan agreements, therefore providing flexibility and rapid financial relief.
Such innovative solution promoted by BOAD, at the initiative of KfW, is the result of a cooperation between several players: African Risk Capacity Limited (ARC Ltd), which insures BOAD against losses related to the deferral of annual instalments, Munich Re, which provides reinsurance to ARC Ltd and which has been mandated with Frankfurt School of Finance by KfW to develop and implement the project.
“BOAD and WAEMU member countries welcome the introduction of this innovative tool, which provides financial support to the most vulnerable and exposed countries to climate and health risks, by facilitating debt servicing and improving resilience to shocks, “said Mrs Gneke/e GNASS/NGBE, Head of Treasury and Capital Markets Department of BOAD.
For Michael Wehinger, Head of KfW West Africa “this innovative financial tool, which combines subsidized loans with parametric insurance, represents a significant step in building greater resilience for WAEMU member countries to tackle climate and health challenges.
“ARC Ltd. is committed to helping African countries build the financial resilience required to address the unpredictable impacts of climate and health disasters. By integrating parametric insurance into sovereign loan portfolios, we are providing immediate relief and enabling countries to maintain their development path even in the face of adversity. This innovative initiative reflects the importance of innovative financial solutions and reinforces our shared mission to provide rapid support”, declared Anals Symenouh, Head of the Legal Department
Commenting on this achievement, Celine Harden, Project Manager at the Frankfurt School of Finance and Management, said: “We have been involved in the development of the product from the outset, and we welcome BOAD ‘s pioneering role in introducing Shock Resilient Loans. This not only represents a new instrument in the development banks’ offer, but also enables countries to better address the aftermath of natural disasters by using pre-established financing mechanisms. “
Michael Roth, Munich Re’s Public Sector Practice Lead and Project Manager on behalf of Munich Re commented: “We are very proud to have contributed our expertise to the development of the Shock Resilient Loans program. The launch of this program is a superb demonstration of the use of parametric
insurance to cover the maturities of sovereign loan portfolios. BOAD’s success should serve as a model to be replicated in other regions of Africa, and beyond.”
