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The World Bank Group 101: The Global Resolution of Financial Disputes


Foreword

This series of articles provides a detailed explanation of the work conducted by the World Bank, a well-known international financial institution, and its importance. The World Bank Group is one of the world’s largest providers of sources, knowledge, and funding for low and middle-income countries. Through issuing loans and grants the World Bank can facilitate the development of struggling nations in their fight to eradicate poverty, inspire prosperity, and promote sustainability. A detailed analysis of the past and present engagement of the five divisions of the World Bank Group will address the respective frameworks of the five organizations. Each article will focus thoroughly on the function and activity of each of the following organizations: The International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). As an institution dedicated to establishing long-term economic development, the World Bank is an organization whose continuous technical and financial support has successfully implemented projects and reforms on a global level. The World Bank Group 101 series aims to break down the function of the World Bank Group and its five member organizations. Every article in the series aims to offer an overview of the mission of the respective WBG institutions and their never-ending war against poverty and many other global issues concerning the majority of the countries of the world.


The World Bank Group 101 series consists of six articles:

  1. The World Bank Group 101: The Bank of All the World

  2. The World Bank Group 101: A Tale of Reconstruction and Development

  3. The World Bank Group 101: A Narrative on the Association of Development

  4. The World Bank Group 101: Encircling Risk Management and Investment Warranty

  5. The World Bank Group 101: A Story on International Arbitration

  6. The World Bank Group 101: The Global Resolution of Financial Disputes



The Multilateral Investment Guarantee Agency is an international institution that promotes investment in developing countries by offering political and economic risk insurance. Abbreviated as MIGA, is a member of the World Bank Group and is headquartered in Washington, USA (About Us, n.d.). The mandate of this international organization promotes cross-border investment in developing countries by providing guarantees of political risk insurance and credit enhancement to both borrowers and lenders. As the concluding piece to an informative series on the World Bank Group members, this article aims to introduce MIGA to unacquainted readers, and explain its history, mission, services, and projects.


All About MIGA

The guarantees put in place by MIGA protect investment and investors on an international level against a plethora of risks, especially noncommercial threats (About Us, n.d.). They also facilitate access to funding sources through detailed terms and conditions. MIGA is often abbreviated as The Agency in the World Bank Group files and conferences due to the unique strength it derives from the World Bank's structure with the largest number of shareholders in the world.


The Agency provides an umbrella of deterrence against governmental actions that could disrupt projects and assist in dispute resolution between investors and governments (About Us, n.d.). Through adding value, MIGA offers clients knowledge of emerging markets and the best international practices in environmental and social management, earning the position of an advisor and a point of reference for its clients (About Us, n.d.).








Projects, Services, and Works

MIGA offers a variety of services in order to encourage foreign direct investment. These services include risk insurance against restrictions of foreign exchange or outbreak of conflicts or wars, as well as imposed spending limits, and related restrictions on assets (Multilateral Investment Guarantee Agency (MIGA), 2022).


In addition to providing political risk insurance to corporations that seek to invest in developing countries, MIGA offers advisory services to developing country governments, by advising them on the policies, practices, and procedures they should follow to attract foreign investment. Other services by MIGA include licensing arrangements, franchising, and technology support (Multilateral Investment Guarantee Agency (MIGA), 2022).








MIGA also provides a credit enhancement solution through its Non-Honoring of Financial Obligations (NHSO) product, which covers transactions involving sovereign and sub-sovereign entities, as well as state-owned enterprises (MIGA Guarantees, n.d.). The primary beneficiaries for this coverage are commercial lenders that provide loans to public sector entities for infrastructure and other productive investments.


To facilitate the flow of foreign investment into specific regions, MIGA supports and runs a number of international projects. One of the numerous projects is the Afghanistan Investment Guarantee Facility, launched in 2005 (Multilateral Investment Guarantee Agency (MIGA), 2022). MIGA's aim was to aid the country in its reconstruction efforts while the country was embroiled in the war, by opening up the doors to direct foreign investment.


MIGA's Leadership Team

According to MIGA, the people in its group have experience in political risk insurance and are well-versed in banking and capital markets, environmental and social sustainability, project finance, specific sector specialties, and international law and dispute settlement (World Bank Group, 2019).

The group's current leading management team includes Hiroshi Matano, Executive Vice President, and Junaid Kamal Ahmad, Senior Vice President, Operations (World Bank Group, 2019).


MIGA's Success Strategy

After the strike of the COVID-19 pandemic similar to many other international organizations including the World Bank itself, MIGA reorganized its strategy and plan of action. Since 2019 MIGA has been dedicated to helping countries and companies respond to the wide impact of the pandemic (About Us, n.d.). The Agency is simultaneously highly committed to delivering the twin goals of the World Bank, ending poverty, and promoting innovative and sustainable development, as well as supporting IFC in meeting their capital package commitments (About Us, n.d.).






There are four strategic decisions positioned on top of the annual strategic commitments of the Agency for 2023 (About Us, n.d.). The first is deepening the impact of MIGA in countries supported by the IDA. The International Development Association or IDA specializes in helping the poorest countries, whereas MIGA aims to serve all their client countries while deepening their impact on low-income countries and Conflict-Affected Situations abbreviated as FCS (About Us, n.d.).The second strategic decision is the continuation of complement market creation through the financing development agenda of the Agency and the Cascade approach (About Us, n.d.). The Cascade approach is the World Bank's signature approach in operationalizing and maximizing finance for development. The third is taking lead on global issues especially climate change, gender, and knowledge and advocacy on the power of guarantees (About Us, n.d.). The fourth and last, key decision is the improvement of MIGA's robust business model through innovation, new products and services, expansion of collaboration with other World Bank Group members, and establishment of deep partnerships with Multilateral Development Banks (MDBs) and Export Credit Agencies (ECAs) (About Us, n.d.).


Performance Standards

As a multilateral development agency, MIGA only supports investments that are developmentally, socially, and environmentally sound. MIGA applies a comprehensive set of performance standards to all projects and offers extensive expertise in working with investors to ensure compliance with these standards. No project that fails to meet the standards can be accepted by MIGA.


The guarantees provided by MIGA offer protection for non-commercial risks as they are highly rated by the Basel Committee, due to being issued by an extremely well-positioned and recognized institution such as the Multilateral Investment Guarantee Agency (MIGA Guarantees, n.d.). MIGA guarantees have a strong risk for appetite indicating that they easily operate in challenging markets such as those of lower-income, conflict-affected and fragile states (MIGA Guarantees, n.d.). The guarantees have a long tenor of 15 years meaning that the time length of each guarantee contract until its expiry date is 15 years (MIGA Guarantees, n.d.). A strong pre-claim management accompanies the long tenors with excellent risk management and leverage of the World Bank Group network.






History and Establishment

​​​​The idea for a multilateral political risk insurance provider was introduced in 1948, long before MIGA’s establishment (History, n.d.). It was not until September 1985 that this idea started to become a reality (History, n.d.). At that time the World Bank’s Board of Governors began the process of creating a new investment insurance affiliate by endorsing the MIGA convention which defined its core mission: "to enhance the flow to developing countries of capital and technology for productive purposes under conditions consistent with their developmental needs, policies and objectives, on the basis of fair and stable standards to the treatment of foreign investment" (History, n.d.).


On April 12, 1988, an international convention established MIGA as the newest member of the World Bank Group, with Mr. Yoshio Terasawa appointed the first Executive Vice President (History, n.d.). The agency opened for business as a legally separate and financially independent entity of the World Bank Group. Membership was first opened for all members of the IBRD, and the Agency began its work with a capital stock of $1 billion (History, n.d.). MIGA’s original 29 members were: Bahrain, Bangladesh, Barbados, Canada, Chile, Cyprus, Denmark, Ecuador, Egypt, Germany, Grenada, Indonesia, Jamaica, Japan, Jordan, Korea, Kuwait, Lesotho, Malawi, Netherlands, Nigeria, Pakistan, Samoa, Saudi Arabia, Senegal, Sweden, Switzerland, United Kingdom, and United States (History, n.d.).


In 1998, as MIGA marked its 10th anniversary Mr. Motomichi Ikawa takes office as Executive Vice President (History, n.d.). The Council of Governors adopted a resolution for an increase of $850 million to be added to general capital, accompanied by a grant of $150 million transferred from the World Bank’s IBRD to MIGA. The doubling of MIGA’s capital resources enabled the Agency to deliver and expand its services to developing-member countries. MIGA held its first symposium with Georgetown University that same year on the topic of international political risk—the symposium remains an influential, biannual event to this day.





Ten years later, as the Agency celebrated its 20th anniversary, MIGA's issued guarantees reached a historic $2 billion (History, n.d.). Four MIGA-supported projects—in Uganda, Djibouti, Costa Rica, and Kazakhstan—won top industry honors (History, n.d.).


In 2019, MIGA conducted its first-ever issuance of a Capital Optimization Guarantee in the Middle East and North Africa region, closing the year with another record-breaking $5.5 billion in guarantees issued to cross-border private investors (History, n.d.). MIGA was highlighted in how it complimented both public and private sources of investment insurance against non-commercial risks in developing countries. The Agency's multilateral character and joint sponsorship by both developed and developing countries reached their peak in 2019 by enabling the world to see them as confidence enhancers among cross-border investors (History, n.d.). That same year, the current Executive Vice President of MIGA, Mr. Hiroshi Matano assumed office.


Figure 8: A diagram of methods capital optimisation.

Mission across Members

Today, MIGA’s mission is the promotion of foreign direct investment into developing countries to support economic growth, reduce poverty and improve people’s lives. The Agency counts 182 members, 154 of which are developing countries and the remaining 28 are industrialized countries (Member Countries, n.d.). Along with Kosovo, the remaining 181 countries are UN members. Only nations that are members of the UN, or World Bank, namely the International Bank for Reconstruction and Development, are eligible to join MIGA. The most recent entry to MIGA was Somalia in 2020 (Member Countries, n.d.). The Council of Governors, which represents the member nations, oversees MIGA. Although the Council of Governors has some corporate authority, the Board of Directors of MIGA has the majority of these rights. The 25-member Board of Directors makes decisions on issues brought before MIGA (Member Countries, n.d.). The weight of each director's vote is determined by the combined share capital of the member countries the director represents (Member Countries, n.d.). The board of MIGA is based in Washington, D.C., where it meets often to manage agency operations. The agency's executive vice president is in charge of daily management and broader strategy.


Accessing Information

MIGA’s policy of access to information allows for all of its projects and data to be accessible and serve the community. The policy was last updated in December 2013, and it aims to enhance transparency and promote good governance, with a view to increasing the effectiveness of development and strengthening public trust in the Agency (Access to Information, n.d.). The policy defines MIGA’s obligations to disclose information about itself and its activities. In accordance with the policy, the Agency discloses Summaries of Proposed Guarantees (SPGs) through MIGA’s website prior to consideration by MIGA’s Board of Directors (or other relevant internal authority) (Access to Information, n.d.). The lead time for this disclosure is as follows:

Category A projects are disclosed not less than 60 days prior to Board consideration (Access to Information, n.d.).

All other projects are disclosed not less than 30 days prior to Board consideration (Access to Information, n.d.).






The SPG includes a brief description of the prospective project, such as its location, its purpose, and the preview development impact, as well as information about the investors and lenders seeking guarantee coverage. SPGs are disclosed up until the time of contract signing at which point a Project Brief is disclosed (Access to Information, n.d.). MIGA will cease disclosure of information on a prospective project if it is determined prior, to issue a guarantee that the Agency will not be involved (Access to Information, n.d.).


Project Briefs are disclosed through MIGA’s website upon contract signing. The information in the SPG is updated to reflect the general terms of the project at the time of contract signature to avoid any privacy protection issues. The Briefs require Environmental and Social Review Summaries to be provided for projects due to the need for Environmental and Social Impact Assessments which may rise throughout the duration of the project (Access to Information, n.d.). After the contract is signed the Project Brief and the project’s environmental and social documents remain disclosed in the project database on MIGA’s website (Access to Information, n.d.). If all of the contracts of guarantee related to a specific expire or are canceled, the project status will be marked as "inactive."


As per the Access to Information Policy, MIGA does not disclose business-confidential information related to clients, internal communications with its board and management, or personal information about staff due to the legalities that are imposed by the sensitive nature of such information (Access to Information, n.d.).


Figure 11: Former Executive President of MIGA at the celebration of MIGA`s 30th anniversary in July 2021.

In conclusion, the Multilateral Investment Guarantee Agency is a World Bank Group member and an international financial institution that provides political risk insurance known as guarantees to investors and lenders, for projects in various sectors in developing member countries, covering all regions of the world. As a multilateral development agency, it only supports investments that are developmentally sound and meet high social and environmental standards. MIGA shares the goals of the World Bank through promoting foreign direct investment to support economic growth, reduce poverty, and improve quality of life.


Bibliographical References

About Us. (n.d.). Multilateral Investment Guarantee Agency | World Bank Group. https://www.miga.org/about-us


Access to Information. (n.d.). Multilateral Investment Guarantee Agency | World Bank Group. https://www.miga.org/access-information


History. (n.d.). Multilateral Investment Guarantee Agency | World Bank Group. https://www.miga.org/history


Member Countries. (n.d.). Multilateral Investment Guarantee Agency | World Bank Group. https://www.miga.org/member-countries

MIGA Guarantees. (n.d.). https://www.ifc.org/wps/wcm/connect/Topics_Ext_Content/IFC_External_Corporate_Site/syndications/sa-product/miga-guarantees/

Multilateral Investment Guarantee Agency (MIGA). (2022, September 29). Investopedia. https://www.investopedia.com/terms/m/multilateral-investment-guarantee-agency-miga.asp

World Bank Group. (2019, November 12). World Bank Group Appoints Hiroshi Matano to Head MIGA. World Bank. https://www.worldbank.org/en/news/press-release/2019/11/11/world-bank-group-appoints-hiroshi-matano-to-head-miga