This summary covers an application made to cover a proposed commercial lending facility of US$800 million to Banco do Brasil S.A. (BdB) to be provided by : JPMorgan Chase Bank, NA., Standard Chartered Bank, HSBC Bank plc, and Credit Agricole CIB, and other lender(s) yet to be identified. MIGA's coverage has been sought in relation to a Non-Honoring of Sovereign Financial Obligations by a State-Owned Enterprise (NHFO-SOE) guarantee for up to US$1,200 million and a tenor of up to 10 years.
The MIGA-guaranteed loan will be usedto support BdB's local lending operations for Micro, Small and Medium (MSME) farmers engaged in no-till agriculture, which is considered a climate-smart agricultural practice offering carbon sequestration and climate resilience benefits. Hence, BdB will provide timely and flexible funding of up to US$2.0 million to no-till farmers with annual revenues below US$3.0 million to ensure that they have access to the necessary funding for their annual harvesting requirements.
The Project is expected to contribute to increased access to finance toward MSME farmers in support of sustainable agriculture, i.e. no-till farming. Furthermore, the Project has potential demonstration effects associated with the adoption of sustainable agricultural practices by a leading state bank in Brazil, further reinforcing the urgency to accelerate the country's pathway to net-zero and leveraging private capital through the baking system as a key entry point to climate transition.
The proposed Project aligns with the World Bank Group's Climate Action Plan 2021-2025 (CCAP, 2021) and the Roadmap for Climate Action in Latin America and the Caribbean 2021-2026 that supports green, resilient and inclusive development. The Project is consistent with Brazil's Country Partnership Framework (CPF) for FY18-2320 which is structured across three focus areas: (i) Fiscal consolidation and government effectiveness, (ii) Private sector investment and productivity growth, and (iii) Inclusive and sustainable development. The Project is particularly aligned with focus area 2 as it contemplates the reduction of barriers to improve the mobilization of private financing for trade, as well as increased access to finance to MSMEs. The Project is also aligned with the WBG's Green Resilient and Inclusive Development framework (GRID) approach through its contributions to sustainability and resilience to climate shocks.
The proposed Project is also aligned with MIGA's FY24-26 Strategy and Business Outlook under its strategic focus of ensuring inclusive growth as it is expected to support underserved groups, specifically MSME farmers. In addition, the Project has the potential to help address the global challenges of climate change and deforestation in Brazil by supplying financing for climate related activities.
Banco do Brasil provides retail, MSME, and corporate finance services to clients in Brazil. The MIGA project will support lending to MSMEs in the agriculture sector, specifically no-till farming. MSME transactions are typically consideredlow to medium-risk transactions, with environmental and social (E&S) risks and impacts that can be addressedthrough mitigation measures.Additional considerations, commensurate to the size of MSMEs, for harmful child labor, forced labor, use of pesticides, biodiversity loss and impacts on indigenous peoples associated with agriculture will be assessed for this Project.This Project has thus been categorized as FI-2 in accordance with MIGA's Policy on Environmental and Social Sustainability (2013).
The main E&S aspects of this Project relate to BdB's ability to identify, assess, and manage the E&S risks and impacts associated with its lending activities and the management of labor matters. MIGA analyzed BdB's portfolio for types of transactions, tenor, size, industry sectors, and exposure to MIGA's Exclusion List. MIGA also analyzed BdB's E&S risk management procedures for lending activities in line with the requirements ofPerformance Standard 1: Assessment and Management of Environmental and Social Risks and Impacts (PS1), and BdB's labor practices in line with the requirements ofPerformance Standard 2: Labor and Working Conditions (PS2).
As of June 2023, BdB's portfolio included the following business segments - corporate loans, retail loans MSME loans. The main sectors supported include public administration, food and beverage, services, utilities, oil and gas, and transportation. BdB currently has limitedexposure to activities on the MIGA Exclusion List or coal-related projects.
For the purposes of the MIGA guarantee, BdB will be required to assess MSME transactions against: (i) MIGA Exclusion List; (ii) applicable E&S laws and regulations in Brazil; and (iii) sector-specific issues in the agriculture sector.
In relation to E&S risk management, BdB implements an E&S risk management framework for identifying, assessing, and managing E&S risk and impacts associated with its lending activities. The framework covers screening against BdB's exclusion list and restricted activities; assessment of E&S risks and impacts via an E&S due diligence questionnaire; compliance with local E&S laws; identification of E&S conditions of lending as required and monitoring assessments. For the agriculture sector, the assessment process factors in issues associated with land, labor, biodiversity, and indigenous peoples as well as regulatory requirements. For the MIGA project, BdB's exclusion list needs to be expanded to include activities on the MIGA Exclusion List.
BdB has emergency response procedures which are in line with the requirements of PS1. BdB also has labor policies and procedures that address terms of employment, recruitment, renumeration, benefits, grievance management and non-discrimination.
For the proposed guarantee, BdB will be required to report annually to MIGA regarding its MSME agriculture portfolio, the implementation of the E&S procedures as well as labor practices.
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