Principles of Project Finance

These various modes of financing, also provided by other private-sector Islamic

banks and Islamic finance departments of international banks, can be provided as

part of a project finance package, in parallel with banks lending on a conventional

basis.

IDB financing is provided for up to 12 years, at fixed or floating rates of mark-

up, and for a maximum of 20 million “Islamic dinars” (an artificial unit equal to

one Special Drawing Right [SDR] of the IMF, i.e., approximately $25 million).

§11.7 PRIVATE-SECTOR INSURANCE

Until recently the private-sector insurance market played little role in the politi-

cal risk field. The coverage offered was limited in amount, scope, and term. This

situation has changed rapidly, not least because of cooperation with the public

sector, such as through MIGA’s CUP program or coinsurance with OPIC. Ma-

jor insurers in the market include AIG, Chubb, Lloyds, Swiss Re, and Zurich-

American; overall, more than 20 insurance companies offer political risk coverage

of up to $150 million per project, in some cases for terms of up to 15 years. The

nature of the coverage reflects that offered by that of ECAs to both investors and

lenders. Private-sector insurers may, like some ECAs, require the investor to re-

tain, say, 10% of the insured risk.

The private sector may also offer “bridging” cover, if it would take too much

time until the necessary procedures for ECAs or IFIs to provide coverage have

been completed; if the ECA or IFI coverage is never provided, the private-sector

coverage continues.

It should be noted that whereas public-sector insurers of political risk, whether

of equity or debt, generally require that their presence in the transaction is pub-

licly known (and often require the Host Government to counterindemnify them),

private insurers may make it a condition of their insurance’s validity that its exis-

tence is not revealed, so as avoid any party behaving badly in the knowledge that

insurers will pick up the loss.

§11.7 Private-Sector Insurance 249

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