Financial Daily from THE HINDU group of publications
Saturday, Nov 19, 2005
Money & Banking
Industry & Economy - Foreign Direct Investment
MIGA offers insurance product for SMEs Eligibility: Less than 300 staff, $15-m assets, $15-m sales
Mr Nabil Fawaz
Chennai , Nov. 18
A MISCONCEPTION over the functioning of the Multilateral Investment Guarantee Agency (MIGA), which was holding up Indian government approving proposals guaranteeing investments into India, has been cleared.
With this, several companies that intend to invest in India have come forward to make use of MIGA's services, Mr Nabil Fawaz, Global Head, Agri-business, Manufacturing & Services, MIGA, said.
MIGA, an arm of the World Bank, endeavours to increase FDI flows among its 167-member nations, with special focus on developing countries. With this objective, it provides guarantee to investments made in thesecountries.
Until recently, the Government of India had been under the impression that it would have to indemnify MIGA for any claims arising out of India and paid by the agency to the client, Mr Fawaz told journalists here on Friday. However, while it was true that MIGA would negotiate for compensation by a government if the agency had to pay a claim because of that government's actions, governments would not be legally bound to pay up everytime MIGA paid a claim, he said.
Speaking at a seminar organised here by the Exim Bank of India, Mr Fawaz pointed out that in the 17 years of the agency's existence, it had to pay claims only three times. It usually negotiates with the host country to get its client his dues.
MIGA insures investments made by a company in a foreign country against four broad types of risks transfer or in-convertibility of profits and other dues, expropriation (the action of the state in taking or modifying the property rights of an individual in the exercise of its sovereignty), damage and business interruption consequences due to war or civil disobedience and breach of contract. It covers equity, loans and guarantees either by the investor or by a third party.
Besides, a company that takes the services of MIGA also avails itself of the enormous experience of the World Bank, in dealing with the investee country.
Mr Fawaz also described a new product of MIGA designed especially for small and medium enterprises. The `Small Investment Programme' of MIGA, on offer since the last three months, covers investments up to $5 million.
However, to be eligible to avail itself of the service, a company mustsatisfy two of the three set criteria it must employ less than 300 people, must have assets less than $15 million (Rs 70 crore) and sales less than $15 million.
Usually, MIGA charges an application fee of $10,000, which is adjustable against the premium to be paid by the client. But the application fee is not refunded, if the applicant does not take MIGA's services. However, under the `Small Investment Programme', MIGA would not charge the application fee, Mr Fawaz said.
He said that about 35 small and large Indian companies were interested in taking MIGA's services.
Earlier, Mr K. Muthukumaran, General Manager, Exim Bank, said India's outward investments between 1996-97 and up to November 2004 amounted to $6.3 billion (Rs 28,000 crore). He said the Exim Bank, in partnership with MIGA, would help "in the promotion of outward orientation of SMEs in India".
He said Exim Bank was now allowed to take equity stakes in overseas investments of its clients. "With Exim Bank's stake, the companies can raise capital at competitive rates from overseas markets," he said.
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