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IFC’s Financing Instruments

IFC’s Financing Instruments. IFC: Part of the World Bank Group. IFC’s Mission. IFC is owned by its 178 member countries, which collectively determine policies. To promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people’s lives.

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IFC’s Financing Instruments

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  1. IFC’s Financing Instruments

  2. IFC: Part of the World Bank Group IFC’s Mission IFC is owned by its 178 member countries, which collectively determine policies. To promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people’s lives.

  3. IFC Products and Services • To assist private enterprise in developing countries, IFC: • Provides loans and equity for viable projects • Mobilizes capital from other sources • Provides technical assistance and advisory services

  4. Financial Strength (As of June 30, 2006) • Paid-in capital:$2.4 billion • Total capital (net worth):$11.1 billion • Capital strength:IFC’s capital resources currently stand at 54 percent of risk-weighted assets, well above the 30 percent minimum for this ratio required by the capital adequacy policy.

  5. Defining Characteristics of IFC • Participates only in private sector ventures • Shares same risks as other investors • Invests in equity • Has market pricing policies • Does not accept government guarantees • Is profit oriented

  6. IFC’s Beneficial Role • IFC presence reassures • Foreign investors • Local partners • Governments • Reputation and standing to help negotiations • Measure of political risk cover • Catalyst for other investors and lenders

  7. Services Offered by IFC • Financial products:loans, equity, quasi-equity, guarantees, risk management products; includes transactions in many local currencies • Resource mobilization:loan participations and structured finance • Technical assistance and advisory services:on environmental/social performance, links with small businesses, corporate governance, capacity building, investment climate—many other issues

  8. IFC Portfolioas of June 30, 2006 by Industry Municipal Fund 0.2% Infrastructure 15.6% Global Manufacturing and Services 21.7% Oil, Gas, Mining and Chemicals 10.6% Agribusiness 6.9% Global Financial Markets Group 34.5% Global information and Communication Technologies 4.6% Health and Education 1.4% Private Equity and Investment Funds 4.4% Total : $21.6 billion An additional $5.1 billion is held and managed for participants.

  9. IFC Investment Guidelines A project must be : • In the private sector • Financially, economically, environmentally, and socially sound • 25 percent maximum IFC's share of project cost • Investment size • $1 million to $100 million in standard projects • Investments in local financial institutions often support on-lending to small and medium enterprises

  10. IFC Loans • Currency of choice • Fixed or floating market-rate pricing • Features • Tailored to cash flow • Long maturities, usually 7 to 12 years • Appropriate grace periods

  11. IFC Equity Investments • Equity investments based on anticipated return • IFC not normally the largest shareholder (not more than 35 percent) • Passive investor • Often considered “local” shareholder • Long-term investor of 8 to 15 years • Public listing the preferred exit mechanism

  12. IFC Quasi-Equity Financing • Convertible debentures • Subordinated loans • Income warrants • Other hybrid instruments • Appropriately priced

  13. IFC Risk Management • Products:swaps, options, forward contracts • Purpose:helps client companies hedge interest rate, currency, or commodity price exposure—improving their creditand profitability

  14. Structured Finance • Products:partial credit guarantees and securitizations in local or foreign currency • Purpose:allows clients to diversify funding, extend maturities, and obtain financing in their currency of choice; helps develop local capital markets

  15. IFC’s Indirect Financing • Credit and equity lines • Venture capital • Leasing • Emphasis on investments in local financial institutions that on-lend to small and medium enterprises

  16. IFC Loan Syndications • Agreement with borrower: loan funded by IFC and participant banks • Benefits: participant banks receive • Reduced risk • Exemption from country-risk provisioning • Immunity from taxation • Extensive emerging-market experience • Detailed preinvestment appraisal • Sound due diligence and ongoing supervision

  17. IFC’s Technical Assistanceand Advisory Services

  18. Sub-Saharan Africa IFC Project Financing Commitments, US$millions

  19. FY06 Investments Sub-Saharan Africa • Committed $700 million in financing for 38 projects* in 11 countries • Project financing (for IFC’s own account): • Loans $393 million • Equity & quasi-equity $72 million • Guarantees and risk mgt. $235 million • Loan syndications $0 million *Includes regional share of selected global investments

  20. Regional Portfolio for IFC’s account FY06 Sub-Saharan Africa (millions of U.S. dollars): • Largest Country Exposures (millions of U.S. dollars): • Nigeria 544 • South Africa 206 • Cameroon 190 • Kenya 152 • Mozambique 121

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