Miga wins highly-rated status

The Basel Banking Supervision Committee has awarded Miga a highly-rated multilateral classification under the recommendations and standards of the Basel II framework.

The committee’s decision means that a private bank that uses Miga insurance to protect against the risk of currency convertibility and transfer restrictions is able to use the borrower’s local currency rating for risk-weighting purposes.

Local currency risk-rating is usually more favourable than foreign currency ratings, which reflect the ratings of the sovereign.

Furthermore, this will lower the cost of eligible loans, which Miga hopes will encourage the flow of investments to developing countries.

A Miga spokesperson comments: “Such foreign investments can be a powerful instrument to help countries reach their development goal and are especially important as the world recovers from the global financial crisis.”

This recognition will not come as a surprise to Miga’s existing clients, as the agency’s executive vice-president, Izumi Kobayashi, adds: “Our banking clients know quite well the special value of Miga’s political risk insurance. This now provides formal recognition in the Basel II framework. We hope that this value spurs loans to poorer countries on the receiving end of developmentally-sound foreign direct investment.”
 
Kobayashi explains to GTR why Miga was not granted this accolade earlier: “The historical challenge has been to have the Basel Committee understand why Miga did not have a AAA rating. The simple truth is that we did not need the rating because we don’t issue bonds. To overcome this issue, Miga worked with the committee to convince them that, from a financial perspective, we are in the same class as AAA-rated organisations.

“Moreover, even though our role within the World Bank Group is decidedly private-sector oriented, our board members are the same as those of the IBRD and the IFC, [and] our president is also the same [so] our capital base is very strong.”