The innovative and unique nature of this instrument lies in the combination of a subsidized loan offer with a parametric insurance product. Such project will enable BOAD member countries to bring forward their climate investments and projects whilst building greater resilience. In the event of a natural or health disaster exceeding a predefined threshold such as drought, flooding, epidemic or pandemic, the insurance mechanism will be triggered waiving either 50 or 100 of the annuities of the loan portfolio payable by the borrower the four pilot countries during the coverage period.
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.
Such innovative solution promoted by BOAD, at the initiative of KfW, is the result of a cooperation between several players African Risk Capacity Limited ARC Ltd, which insures BOAD against losses related to the deferral of annual instalments, Munich Re, which provides reinsurance to ARC Ltd and which has been mandated with Frankfurt School of Finance by KfW to develop and implement the project.
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, said Mrs Gneke/e GNASS/NGBE, Head of Treasury and Capital Markets Department of BOAD.
For Michael Wehinger, Head of KfW West Africa 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.
