Summary of Proposed Investment
Project Number
10880
Company Name
Gerling Credit Insurance Group
Date SPI Disclosed
Mar 2, 2001
Country
Middle East, Pakistan, and Afg Region
Industry
Financial Markets
Projected Board Date
Apr 2, 2001
Status
Completed
Sector
Other Non-Depository Credit
Department
Regional Industry FIG MCT
Environmental Category
C - No Impact
Previous Events
Approved : Apr 10, 2001
Signed : Jun 1, 2001
Invested : Jun 28, 2001
Project Description
The proposed project would create a holding company, Gerling Emerging Markets Credit Insurance S.A., for the exclusive purpose of making investments in credit insurance companies (and related businesses) in emerging markets countries, through the establishment of new entities and acquisition of existing credit insurance companies.
The sponsor of the project, GCIG sees a significant role for IFC as a partner in the proposed venture. At the level of the holding company, IFC will bring long-standing experience as an investor in the financial sector of emerging markets through representation on the company''s board. GCIG also values the local market knowledge and contacts of IFC staff in specific countries, and in some circumstances IFC will co-invest with the holding company and have direct representation on the investee company''s board.
Credit insurance is a new or under-developed product in most markets where the holding company will be investing. Often the legal/regulatory framework will present impediments to the establishment of a sound, competitive credit insurance industry (e.g. limitations on insurance companies'' credit risk cover activities, insufficient legal infrastructure to permit efficient debt collection efforts, etc.). IFC will help local insurance regulators and other authorities to address these impediments.
The project should have a strong development impact. Credit insurance, and other information-intensive products and services such as credit scoring and credit bureaus, encourage financial institutions to move "down-market" profitably by lowering unit transaction costs, strengthening risk management, and improving their ability to tailor services for specific market segments, especially SMEs.
The project enables IFC to help authorities of member countries create appropriate legal and regulatory framework for undertaking credit insurance, which would often benefit not only credit insurance per se, but banking and financial services in general. The project is complementary to other IFC Financial Markets efforts to strengthen the credit infrastructure of emerging markets, including the e-finance initiative. In addition, use of credit insurance by emerging markets firms that face cash/liquidity constraints will reduce trade risk associated with their balance sheets, making them more easily financeable.
Credit insurance will increase financing options for emerging markets companies because it is a viable alternative to factoring, forfaiting, and letters of credit/bank guarantees, in order to manage trade risks. Credit insurance has advantages over factoring and forfaiting in that long-standing producer-customer relationships are maintained. Credit insurance also can have advantages over Letters of credit/bank guarantees, which impose costs on and may reduce the financial flexibility of buyers.
Promotion of other products and services that are "embedded" in basic credit insurance cover - but that are often not well developed as stand-alone offerings in emerging markets (e.g. account receivables servicing/management, invoicing, collection management, legal actions or other types of debt collection activities) - is likely to occur if international credit insurers expand their business activities in these countries.
The sponsor of the project, GCIG sees a significant role for IFC as a partner in the proposed venture. At the level of the holding company, IFC will bring long-standing experience as an investor in the financial sector of emerging markets through representation on the company''s board. GCIG also values the local market knowledge and contacts of IFC staff in specific countries, and in some circumstances IFC will co-invest with the holding company and have direct representation on the investee company''s board.
Credit insurance is a new or under-developed product in most markets where the holding company will be investing. Often the legal/regulatory framework will present impediments to the establishment of a sound, competitive credit insurance industry (e.g. limitations on insurance companies'' credit risk cover activities, insufficient legal infrastructure to permit efficient debt collection efforts, etc.). IFC will help local insurance regulators and other authorities to address these impediments.
The project should have a strong development impact. Credit insurance, and other information-intensive products and services such as credit scoring and credit bureaus, encourage financial institutions to move "down-market" profitably by lowering unit transaction costs, strengthening risk management, and improving their ability to tailor services for specific market segments, especially SMEs.
The project enables IFC to help authorities of member countries create appropriate legal and regulatory framework for undertaking credit insurance, which would often benefit not only credit insurance per se, but banking and financial services in general. The project is complementary to other IFC Financial Markets efforts to strengthen the credit infrastructure of emerging markets, including the e-finance initiative. In addition, use of credit insurance by emerging markets firms that face cash/liquidity constraints will reduce trade risk associated with their balance sheets, making them more easily financeable.
Credit insurance will increase financing options for emerging markets companies because it is a viable alternative to factoring, forfaiting, and letters of credit/bank guarantees, in order to manage trade risks. Credit insurance has advantages over factoring and forfaiting in that long-standing producer-customer relationships are maintained. Credit insurance also can have advantages over Letters of credit/bank guarantees, which impose costs on and may reduce the financial flexibility of buyers.
Promotion of other products and services that are "embedded" in basic credit insurance cover - but that are often not well developed as stand-alone offerings in emerging markets (e.g. account receivables servicing/management, invoicing, collection management, legal actions or other types of debt collection activities) - is likely to occur if international credit insurers expand their business activities in these countries.
Sponsor / Cost / Location
Development Impact
Related ESRS/ERS
Contacts
For Inquiries About the Project, Contact
KYoshinari@ifc.org, XJordan@ifc.org, DFernando1@ifc.org