Afghanistan Investment Guarantee Facility

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The Investment Guarantee Facility objective is to assist Afghanistan in its reconstruction efforts by stimulating foreign investment through a program of political risk insurance - in an environment where the perception of political risk (risks of war and civil disturbance, expropriation, transfer restriction and breach of contract) by foreign investors remains high. Under this project, IDA will provide a credit to the Government of Afghanistan for an Investment Guarantee Facility which will be administered and implemented by MIGA. The Facility ' s capital base will be made up of cash contributions from IDA and others to be disbursed into an interest bearing Trust Fund. Investors will pay premiums and MIGA, as Administrator, will issue contracts of guarantee on behalf of the Facility. All guarantees supported by the Guarantee Facility will follow MIGA's regular underwriting procedures and methodologies, and will be able to offer coverage against the following risks: transfer restriction and inconvertibility, expropriation, war and civil disturbance and breach of contract. The guarantees will be priced to risk, in accordance with MIGA's pricing methodology and guarantee contracts will have a maximum duration of seven years. In view of the need for flexibility in Afghanistan's conflict-effected environment, it is proposed that the Guarantee Facility be able to support the following transactions generally ineligible under MIGA's regular policies: a) foreign loans without equity, to be used to finance a local equity investment or the importation of critical capital goods for reconstruction; and b) local loans provided in a freely convertible currency by a foreign financial institution in Afghanistan.