The West African Development Bank (BOAD) has launched the “Shock Resilient Loans” program under its sovereign loan portfolio, covered by parametric insurance against natural and health disasters, supported by Munich Re.
The project’s pilot phase covers Benin, Côte d’Ivoire, Senegal and Togo, a loan portfolio in these countries totalling over USD350 million.
It combines a subsidised loan with parametric insurance, allowing BOAD member countries to accelerate climate investments and projects while enhancing resilience.
If a natural or health disaster strikes, such as a drought, flood, epidemic or pandemic, the insurance coverage will be triggered, temporarily suspending loan repayments.
This means that the insurance mechanism allows the Bank to waive the obligation of its borrowing countries to pay annuities on outstanding loans.
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.
Gnékélé GNASSINGBE, Head of Treasury and Capital Markets Department of BOAD, said: 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.”
Such an innovative solution promoted by BOAD, at the initiative of KfW, is the result of a cooperation between several players, including African Risk Capacity Limited (ARC Ltd) and Munich Re.
ARC Ltd insures BOAD against losses related to the deferral of annual instalments, while Munich Re, provides reinsurance to ARC Ltd and which has been mandated with Frankfurt School of Finance by KfW to develop and implement the project.
Michael Wehinger, Head of KfW West Africa, commented: “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.”
He added: “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 Anaïs Symenouh, Head of the Legal Department.”
Michael Roth, Munich Re’s Public Sector Practice Lead and Project Manager on behalf of Munich Re, stated: “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.”
