IFC aims to help South Asia integrate into the global economy by bringing foreign investors to South Asia and taking South Asian companies to other markets; share global best practices; and provide longer tenor/subordinated debt and equity to second tier companies, whilst adding value from mobilization, sustainability and IFC’s “seal of approval”. As of end FY07, the committed portfolio was $2.6 billion.
Infrastructure
Infrastructure continues to be the main constraint to sustaining rapid economic growth in South Asia. The main constraints to greater private financing are the lack of bankable projects, lack of equity and availability of long tenor funding. IFC aims to scale up its support for private investment in infrastructure in close collaboration with the World Bank, with new commitments. This will be achieved through a mix of investments of long-term debt and equity in specific projects; corporate investments in local infrastructure development companies; investment funds; privatizations and PPPs. Target sectors include power, transportation, water, waste water and sanitation. IFC is also developing a donor-funded facility to increase its capacity to do advisory work for infrastructure.
Rural Areas
In India, the majority of the poor live in rural areas, where the private sector has had less of an impact on economic growth. IFC is seeking ways to increase the impact of the private sector on rural growth through investments and associated advisory services in agribusiness, rural finance (especially microfinance) and rural infrastructure. In addition, IFC helps investee companies link their operations to the rural economy. This year, IFC launched a major linkage program in a poor, undeveloped region of Rajasthan, India, associated with its investment in Cairn Energy.
Financial Sector
In the financial sector, IFC’s strategy is to make investments and provide advisory services to build capacity in private financial institutions which contribute to financial deepening and expansion of financial services to underserved segments, such as SMEs. In India, IFC will focus on strengthening private sector banks through equity investments in second-tier banks and Upper Tier II capital for stronger private banks as the sector opens up to increased competition and as banks strive to meet Basel II capital adequacy standards. In Bangladesh, Bhutan, Nepal and Sri Lanka, IFC Advisory Services is working with partner banks to increase SME financing, and also to provide trade finance.
Industrial Growth
South Asia is currently experiencing rapid industrial growth, especially in India, as a result of improved international competitiveness stimulated by reduced tariffs and relaxation of FDI restrictions, and strong growth in domestic consumption. IFC’s strategy is to invest equity and debt in labor-intensive, knowledge-based, exportoriented, globally competitive second-tier companies to support continued industrial growth.
Equity Investments
As of end-FY07, IFC held $271 million in equity in South Asia, representing 16.6% of the disbursed portfolio (net of specific reserves) at cost. IFC plans to increase the proportion of equity in its portfolio to 25% by FY10, with a focus on smaller investments and investments in family-owned companies which find it difficult to attract public or private equity. About two thirds of new investments would be made directly, and one third through funds in segments in which IFC cannot effectively invest directly.
Energy Efficiency and Renewable Energy
To encourage companies to make energy efficiency and renewable energy investments, IFC could help monetize carbon credits. IFC will promote energy efficiency in all new projects, and expects to double the number of projects with energy efficiency or renewable energy components in FY08, and enhance sustainable energy commitments.
Frontier Countries and Regions. IFC is undertaking focused business development efforts to find investment opportunities in frontier countries in the South Asia region and frontier regions within India. In Bangladesh, Nepal and Sri Lanka, a difficult investment climate and political instability have limited investment opportunities in recent years, although prospects for new investments are improving.
