IFC, AIIB team up for development
published : 10 Feb 2017 at 04:00
newspaper section: Business
IFC and the Asian Infrastructure Investment Bank (AIIB) have signed an international swaps and derivatives association (ISDA) master agreement to enhance their capacity to invest in emerging-market projects, especially in Asia's infrastructure sector.
It is the first financial collaboration agreement between the two development finance institutions, demonstrating innovative ways to scale up development finance through capital market solutions.
Under the agreement, IFC, a member of the World Bank Group, and AIIB will be able to jointly hedge the interest rate and currency risks associated with their investments, expanding their overall lending capacity.
IFC has already entered into such agreements with the African Development Bank, the Asian Development Bank and the European Bank for Reconstruction and Development.
Andrew Cross, IFC deputy treasurer for Asia, said that modern infrastructure is essential for lasting growth and prosperity. Yet the financing gap in this sector is huge, totalling trillions of dollars a year in emerging markets alone.
"Our partnership with AIIB will enable us to offer more efficient infrastructure financing through the broader use of capital markets tools," said Mr Cross.
Earlier this year, IFC launched an innovative programme, known as MCPP Infrastructure, which will raise US$5 billion (175 billion baht) from global institutional investors such as insurance companies to modernise infrastructure in emerging markets over the next five years.
"This agreement facilitates AIIB's ability to support our clients' projects and help promote local currency bond issuance," said AIIB treasurer Soren Elbech.
"Multilateral financial institutions like AIIB and IFC have a much larger risk-bearing capacity compared with private sector companies in the countries where we lend. It therefore makes a lot of sense for us to create financing solutions that significantly reduce our clients' potential losses from such currency risks," said Mr Elbech.
Since opening its doors on Jan 16, 2016, AIIB has approved $1.73 billion in loans to support nine infrastructure projects in seven countries.
The bank is focused on improving connectivity throughout Asia by supporting member countries to meet their environmental and development goals, prioritising cross-border infrastructure projects, and devising innovative solutions to catalyse private capital investment.
In many developing countries, basic infrastructure is failing, insufficient or non-existent. More than 1 billion people lack access to electricity. About 650 million people lack access to clean sources of drinking water, and more than 2 billion live without sewage infrastructure.
Some 80% of wastewater globally is discharged without any treatment, threatening ecosystems and human health. IFC invested more than $4 billion in power, transport and municipal infrastructure projects in fiscal year 2016.