About DFC
DFC is a development finance institution and agency of the United States federal government. DFC invests in development projects primarily in lower and middle-income countries. DFC's lending capacity is used to provide Loans, Loan guarantees, Direct equity investments, and Political risk insurance for private-sector led development projects, Feasibility studies, and Technical assistance.
Political risk insurance provides coverage of up to $1 billion against losses due to currency inconvertibility, government interference, and political violence including terrorism. DFC also offers reinsurance to increase underwriting capacity.
Political Risk Insurance – types of coverage
1) Currency Inconvertibility Protects conversion and transfer of earnings, returns of capital, principal and interest payments, technical assistance fees, and similar remittances. This product insures against potential host country government acts:
- New, more restrictive foreign exchange regulations
- Failure by an exchange control authority to approve of—or simply to act on—an application for hard currency
- An unlawful effort by the host government to block funds for repatriation
- Discriminatory host government actions resulting in an inability to convert and transfer local earnings DFC’s inconvertibility coverage does not protect against the devaluation of a country’s currency.
2) Government interference (Expropriation) Protects against acts of expropriation and other forms of unlawful interference by the host government that deprive investors of their fundamental rights in a project. Government interference in a project can take many forms including:
- Nationalization
- Confiscation and creeping expropriations
- Abrogation, repudiation, or impairment of contract, including forced renegotiation of contract terms
- Imposing of confiscatory taxes
- Confiscation of funds and/or tangible assets
- Outright nationalization of a project DFC can provide arbitral award default and denial of justice coverage for U.S. debt and equity investors, protecting the insured from nonpayment of an arbitral award by a host country government.
3) Bid, Performance, Advance Payment, and Other Guaranty Coverages Guarantees issued on behalf of a U.S. exporter of goods or services, or a U.S. contractor in favor of a foreign government buyer can be covered against the risk of a wrongful calling. The guarantees usually are in the form of irrevocable, on-demand, standby letters of credit. A wrongful calling is one that is not justified by the terms of the underlying contract, or the invitation for bids. In the case of a bid guarantee, the insured may file a claim when it believes a wrongful call has occurred and DFC will make a determination. With performance, advance payment and other guarantees, the insured must invoke the dispute resolution procedure in its contract with the foreign buyer before DFC will pay compensation.
4) Breach of Contract for Capital Markets DFC political risk insurance supports U.S. capital market financing structures that catalyze private capital in emerging markets.
5) Reinsurance To increase underwriting capacity and support development in countries where investors have difficulty obtaining political risk insurance, DFC can reinsure licensed U.S. and international insurance companies.
6) Political violence including terrorism Protects against assets and income losses caused by:
- Declared or undeclared war.
- Hostile actions by national or international forces. Investor’s Roadmap to Ukraine’s Reconstruction by BDO in Ukraine 12
- Revolution, insurrection, and civil strife.
- Terrorism and sabotage.
Investors may purchase this insurance for Assets, Business Income, or both. In addition, DFC can provide coverage for:
- Evacuation expenses.
- Income losses resulting from temporary abandonment of a project caused by political violence.
- Income losses resulting from damage to specific sites outside the insured facility, such as a critical railway spur, power station, or supplier.
DFC has announced some steps in Ukraine for private investors. DFC covers capital insurance up to 85%, and 100% debt insurance.
DFC is prepared to support both direct lending and credit and political (military) risk coverage. The credit risk insurance product assumes that the borrower, having obtained DFC insurance, will approach a commercial bank or other international financial institution.
February 23, 2023 DFC has demonstrated a higher level of interest in insuring Ukrainian business. Unlike MIGA, they are already considering projects initiated by Ukrainian investors, but they are also limited in their capabilities and need refinancing.
