G20 support can benefit India's Surety Bond market - Surety 007

First Surety Bond Insurance was launched in India recently. The Surety Bond market in India is thus in infancy & it could gain from experienced Surety Bond players. Also the G20 summit is underway in India. Citing this opportunity, Surety Se7en got to the front foot in canvassing support from the G20 member countries for the Surety Bond market development in India. Let us see how this matters.

What is G20 & how can they help ?

The G20 is a group of 20 major economies that work together to address economic and financial issues at the global level. Support from the G20 will shape the Surety Bond market optimally in India. This is due to the fact that surety bonds have been successfully commercialised in most of these countries. They are so popular as de-risking financial instruments in G20 member countries that in countries like the United States, they are mandated by law for public works projects.

The surety bond market size in G20 countries was valued at US$ 16.07 billion in 2019. Moreover, it is projected to reach US$ 25.18 billion by 2027. This sums to growth at a CAGR of 6.4% from 2020 to 2027. This stands as testimony to their success with Surety Bonds. Their support would be very helpful to see the same success in India.  

How can G20 support for surety bond be of immediate use ?

G20’s support would have immediate positive effect on India’s infrastructure sector which is maligned with capacity & liquidity issues. This would reduce incomplete or stalled projects while de-risking the government’s exposure to the infrastructure sector. Also after several painful years of handling infrastructure-related non-performing assets, banks would heave a sigh of relief with Surety Se7en working towards G20 reinsurer support in off-loading this risk.  

What can be long-term benefits of G20 support for surety bond ?

G20 Reinsurer support

G20 reinsurers like Munich Re, Hannover Re, SCOR S.E. etc. can help to create a more stable and sustainable Surety Bond market in India. By providing insurers with financial resources & technical expertise G20 reinsurers can help manage risk and build capacity.

1. Increased Capacity & Business activity – Risk transfer to G20 reinsurers would allow insurers to offer Surety Bonds particularly to start-ups & SMEs. This would build market capacity as Surety Bonds would be accessible to more players. After losses, banks have become critical in issuing Bank guarantees.
   
   Further, this would boost business activity in India. As companies get access to more liquidity, since Surety Bonds require No collateral, they are likely invest this capital towards their business growth. Correspondingly the Indian economy could grow exponentially with the liquidity boost from Surety Bonds.
   
2. Better Pricing & Security – G20 reinsurers have decades of experience at successfully offering surety bonds. The data generated by this experience would allow appropriate pricing of Surety Bonds. Pricing that is low in direct cost than Bank guarantees, but high enough to build reserves for some untoward catastrophe is necessary. G20 reinsurers help in this direction is pivotal.

Establishing Guidelines and Standards

Experience of G20 member countries in delivering Surety Bonds allows them to support the surety bond market in India. By promoting regulatory frameworks that encourages the use of surety bonds in partnership with IRDAI, G20 could help immensely in the growth of the Indian Surety market and consequently the Indian Infrastructure sector. This synergy would establish guidelines and standards for the issuance and use of surety bonds that aid in development of the surety bond market in India.

Promoting International Cooperation and Coordination

Finally, the G20 support is crucial in promoting international cooperation and coordination on issues related to surety bonds. This requires development of standards for the issuance and use of surety bonds for global projects.

Is this support unilateral ?

G20 support to Indian Surety bond market is a mutually beneficial one. The reason behind this is Indian Domestic Market is huge. The G20 reinsurers can penetrate this upcoming market and reap the profits. The Global Surety Bond Market can anticipate a growth much more than the current 6.4%, with India at the heart of Surety Bond Insurance. One can say that developed countries have hit the ceiling of growth with linear rate of growth for quite some time. Development avenues in Indian Surety bond market offer the G20 countries a chance to grow their reach and make strong bets in the infrastructure market of India which is the fastest growing large economy in the world.