African Development Fund Partial Risk Guarantee (ADF-PRG)

As a means of stimulating additional private sector investments in low income countries, the African Development Fund (ADF) introduced the Partial Risk Guarantee (ADF-PRG) instrument as part of the Twelfth General Replenishment of the ADF (ADF-12) to do two things. First, to leverage resources from the private sector and other co-financiers for ADF countries, including fragile states. Second, to incentivize governments to undertake policy and fiscal reforms necessary to mitigate performance-related risks.  The ADF-PRG insulates private lenders against well-defined political risks related to the failure of a government or a government-related entity to honor certain specified commitments.  Such risks could include political force majeure, currency inconvertibility, regulatory risks (adverse changes in law), and various forms of breach of contract.  It is a leveraged instrument that consumes only a fraction of the country’s Performance Based Allocation (PBA) but requires a counter-indemnity from the beneficiary member country, in which the country agrees to reimburse the Fund for any amount paid under the guarantee.