For Information Purpose Only Responding to the Global Financial Crisis Overview of IFC’s Crisis...

For Information Purpose Only

Responding to the Global Financial Crisis Overview of IFC’s Crisis Response Initiatives

May 25, 2009

Jean-Marie Masse, Head, Business Development, IFC Global Financial Markets

For Information Purpose Only 2

Agenda

• IFC: Challenges & Opportunities

• A phased response to the crisis

• Providing Liquidity Support: Trade

• Providing Liquidity Support: Microfinance

• Providing Liquidity Support: Infrastructure

• Financial Infrastructure & Policy

• Recapitalizing Banks

• Targeted Regional Intervention

• Initiatives Under Consideration

• Questions

• Contact Information


IFC Challenges

Global Crisis• Uncertainty• Poor are most vulnerable• Need for mobilization

IFC Capital• Requires careful management• Expect limited own-account growth in the

near-medium term• Strategic trade-offs, align strategy to

changing environment

IFC Operations• Human resources: flexibility and skill mix• Speed and responsiveness• Portfolio management

IFC Opportunities

Greater Demand for IFC services• Maintain focus on IDA & frontier• Base of the Pyramid• Address the needs of SMEs• Even stronger additionality • Focus on Development Impact

Demonstrate Critical Role of Private Sector• Successful projects and leadership in standard-

setting• Combine private/public approaches, together

with the World Bank• Promote public good benefits

Innovation for Greater Impact• Mobilization – new partners and models• More Strategic use of Advisory Services• Operating Model: Decentralization and

Business Process Improvement

IFC: Challenges & Opportunities


Crisis Response: Supporting Our Clients

IFC Priorities

• Supporting our existing clients and staying close to them through a strong local presence

• Building strong client relationships and long term partnerships

• Maximizing counter cyclical role

• Working with, and supporting, financial institutions with liquidity needs

Business Approach

• Detailed and frequent monitoring of existing investment

• Proactively finding ways to provide support before problems materialize

• Pricing to reflect market condition

• Equity investments in financial institutions that can significantly benefit from IFC’s capital and value added


A Phased Approach Responds to Market Needs

Advisory Support

Trade Finance

Bank Capitalization

Managing Troubled Assets

3. Capital

4. Troubled Assets

1. Liquidity

Pillars of Success

• Mobilization & working with

Partners

• Job Creation

• Continued Focus on

Frontier Markets & Bottom of the

Pyramid

2. Financial Infrastructure

Infrastructure

Agribusiness

Microfinance & SMEs


Cooperation & Partnership

Coordination is Critical

• The global crisis creates needs beyond the scope of each development finance institution’s traditional capacity. IFC initiatives are benefiting from partnership with other DFIs and governments:

– IFC and JBIC (Japan) are co-founders in the IFC Recapitalization Fund together contributing $3bn; OPEC Fund for International Development has pledged $30 million to a sub-fund for Africa

– IFC, KfW, and OeEB have jointly contributed $300 million to the Microfinance Enhancement Facility– IFC, the UK, Canada, and the Netherlands have together pledged around $1.7 bn to the Global Trade

Liquidity Program– China and Japan are supporting IFC’s trade finance initiatives– Germany, France have pledged around $2bn to the Infrastructure Crisis Facility– Working with EIB, EBRD, AfDB and IADB on targeted regional initiatives

Fund Mobilization

• IFC is scaling up its mobilization effort that is coordinated to present coherent strategy to the market. Mobilizing funds from governments and other sources is critical to all our efforts

– IFC has established a separate wholly owned subsidiary, IFC Asset Management Company LLC, to serve as fund manager of third-party capital mobilized under various IFC initiatives

– Launched in 2009, this approach lets us make more investments - pooling resources from other investors - than we could on our own


Providing Liquidity Support: Trade

Context:• Analysts predict global trade will shrink this year for the first time in three decades

due to loss of trust between banks • Trade finance, the lifeblood of $14 trillion annual global commerce, is declining

IFC’s Response: To swiftly aggregate resources under simple and efficient structures can enhance impact in the global markets

• IFC Global Trade Finance Program (GTFP): – Increased from $1 billion to $3 billion in response to the financial crisis– Provides unfunded support in the form of guarantees for trade transactions in emerging markets

• Global Trade Liquidity Program (GTLP): – Brings together governments, DFIs, and private sector banks to provide funded support for trade in

developing markets– Targeted initial commitments of $5 billion from public sector sources, will support up to $50 billion of trade– Received pledges from IFC ($1bn), Canada (about $200m), the Netherlands (about $50m) and the UK (up

to GBP300m)


Providing Liquidity Support: Microfinance

Context:• Global microfinance sector reaches 130 million clients with $30 billion in assets,15

years of very successful growth exposed to various types of crises• Resources for refinancing are quickly drying up locally and internationally• Strong MFIs cannot tap commercial refinancing for growth• Financings needs estimated to reach $1.8 billion through 2010

IFC’s Response:• The Microfinance Enhancement Facility (MEF) aims to instill confidence in the

microfinance industry, catalyze funding, and safeguards deposits• IFC, KfW, and OeEB have jointly contributed $300 million to MEF• Expected to provide funding to over 100 microfinance institutions in up to 40

countries, many of them IDA or frontier markets• First 40 MFIs approved as of February 2009


Providing Liquidity Support: Infrastructure

Context:

• Private infrastructure in developing countries is severely affected by the crisis:

– Projects under development are delayed/cancelled, existing projects are at risk due to refinancing requirements

– IFC and World Bank research shows that between $67-120 billion of existing and/or new projects could be delayed or suspended due to the financial crisis

IFC’s Response:

• Creation of Infrastructure Crisis Facility (ICF)– To act as a substitute for temporarily not available commercial financing, to signal to

sponsors continued availability of term debt

– To expand resources available to IFIs to increase available pool of funds

– Governments of France and Germany signed MOUs totaling over $2 billion on April 25, other countries have expressed interest in contributing to the ICF


Financial Infrastructure & Policy

Context:• Growing liquidity pressure means that financial intermediaries are cutting back most

lending activities to consumers, entrepreneurs and corporates• This ‘credit crunch’ is likely to impact the poor by significantly damaging the real

economy and reducing employment• IFC is also seeing increased demand from clients in a number of investment climate

related areas

IFC’s Response• IFC is providing the Advisory Services Financial Crisis Response Package to

complement and support IFC’s new investment initiatives• Advisory Services are focused on the financial sector and infrastructure at this stage • They aim to support financial institutions, financial infrastructure and BEE work critical

for SME survival and growth • The services leverage IFC’s established delivery capacity• Delivery platform: IFC’s established Advisory Services capacity


Recapitalizing Banks

Context:• The slowdown is beginning to hit banks as default rates on their credit portfolios rise

sharply, leading to higher loss provisions, lower earnings and an eroded capital base• The crisis poses requires coordinated action on several fronts to:

– address the liquidity and capital needs of banks – avert devastating declines in economic activity that would adversely and disproportionally impact low-

income groups

IFC’s Response:• IFC aims to aims to support banks considered vital to the financial system of an

emerging market country • And to speed up economic recovery and boost job creation while reducing the impact

of the financial crisis• The $3 billion IFC Recapitalization Fund, established in February 2009, with

founding members IFC ($1 bn) and the Japanese government ($2 bn). OFID has pledged $30 million to a Sub-Fund for Africa

• First investment in March 2009 in Paraguay’s Banco Continental


Targeted Regional Intervention

Context:• Global crisis leads to massive needs that are beyond each DFI’s traditional capacity.

Therefore delivering coordinated rapid response will draw from a rich knowledge base and it will increase lending and investments

• IFIs can play a role to restore market confidence

IFC’s Response• February 26, 2009: Joint IFI Action Plan for Central & Eastern Europe

– World Bank Group (IBRD, IFC and MIGA), EBRD and EIB pledged to provide up to €24.5 billion over two years to support the banking sectors in central and eastern Europe and to fund lending to businesses hit by the global economic crisis

– Financial support to include equity and debt financing, credit lines, and political risk insurance

• March 30, 2009: Latin America and the Caribbean (LAC)– The Multilateral Development Bank Joint Effort in LAC was launched by the World Bank Group, and four

other development banks to coordinate their crisis response initiatives and spur economic recovery in LAC

• April 14, 2009: Africa– A Joint Action Plan for Africa can leverage additional financing, protect important ongoing programs and

support investment ready initiatives


Initiatives Under Consideration

• Managing Troubled Assets: IFC expects to increase its presence in the market significantly in the coming 12 to 18 months. Focus would be on:

– Creating a private sector program to achieve a clean-up of banking systems– Encouraging transparent auctions to help governments and banks transfer NPLs to the private sector for

processing– Fostering sustainable and prudent work-out practices

• Export Credit Agency Initiative (ECA): A proposed trade-related program to encourage and facilitate the use of local banks and local currencies in ECA guarantee programs

• Providing Liquidity Support to Agribusiness: The proposed Global Food Fund would seek to:

– Catalyze investments in agribusiness– Increase liquidity in agribusiness value chain to meet seasonal working capital needs– Increase global supply of agriculture commodities and food– Develop necessary global, regional ad local agriculture infrastructure


Questions

• What are your views on these projects?

• Other questions / comments?

For Information Purpose Only Responding to the Global Financial Crisis Overview of IFC’s Crisis...

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