In addition to providing commercial financing for our own account, IFC uses a number of complementary tools to crowd in private sector financing that would otherwise not be available to projects with high development impact. One such approach is to blend concessional funds—typically from development partners—alongside IFC’s own commercial funding.
Blended finance can assist in mitigating early-entrant costs or project risks, helping re-balance risk-reward profiles for pioneering investments and enabling them to happen.
IFC currently applies this approach in three areas: climate change, agribusiness and food security, and finance for small and medium enterprises, including women entrepreneurs. Other areas of strategic priority can benefit from this tool in the future. In FY16, we committed more than $117 million of donor funds, catalyzing more than $1 billion of IFC and private sector financing.
WHAT IFC IS DOING IN BLENDED FINANCE:
Much of IFC’s experience with blended finance has been in the area of climate change where private sector players face higher risks or uncertainties associated with new, unproven technologies or first-of-their kind projects.
The concessional funds in the form of blended finance enable projects to demonstrate viability and then pave the way for financing on fully commercial terms. IFC has a proven track record of mobilizing and intermediating concessional finance from the Global Environment Facility, the Climate Investment Funds and the IFC-Canada Climate Change Program.
Small and Medium Enterprises (SMEs) in emerging markets face a trillion-dollar financing gap. Although banks in some markets are starting to move into SME lending, there still remain segments that are totally underserved. This includes SMEs in fragile and conflict-affected markets, women-owned businesses, education and health-care SMEs, and firms in rural markets.
IFC’s Global SME Finance Facility, the Goldman Sachs Foundation, IFC’s Women Entrepreneurs Opportunity Facility, as well as the MENA SME Facility utilize blended-finance instruments to help financial intermediaries expand their lending to underserved SME segments.
These facilities offer guarantees to lower the risks faced by financial institutions moving into SME markets. They also provide dedicated credit lines to reach specific segments—including women-owned SMEs—and performance incentives to motivate financial institutions grow their SME portfolios more quickly.
AGRIBUSINESS & FOOD SECURITY
Seventy-five percent of the world’s poorest people live in rural areas – places where agriculture has the greatest potential to lift them out of poverty. The Global Agriculture and Food Security Program (GAFSP) is a multi-donor fund with public and private sector windows and targets IDA countries with the highest rates of poverty and hunger. The private sector window of the program is managed by IFC and provides short- and long-term loans, credit guarantees, quasi-equity and equity to private sector companies or banks and financial institutions to support projects that help smallholders and SME farmers to improve productivity growth, create and deepen links to markets, and increase capacity and technical skills.
The IDA Private Sector Window (IDA-PSW)
The IDA Private Sector Window is a new development finance tool to crowd-in more private sector investment where it is most needed. The $2.5 billion allocation from IDA-18 for IFC and MIGA will rebalance the risk-reward profile for private sector projects in the poorest countries eligible to borrow from the World Bank’s International Development Association, or IDA, and fragile and conflict-affected situations (FCS). It will be implemented through four facilities:
- a Local-Currency Financing Facility for markets with limited currency hedging capabilities;
- a Risk-Mitigation Facility to provide project-based guarantees – focusing on infrastructure or public-private partnership (PPP) projects – without sovereign backing;
- a MIGA Guarantee Facility to expand coverage of MIGA guarantee(s); and
- a Blended-Finance Facility to mitigate various financial risks by providing loans, equity, and guarantees to pioneering IFC investments across sectors with high development impact. In addition to the sectors to which we have already applied blended finance, we will be expanding to new sectors such as manufacturing, technology, and basic services.
The Private Sector Window will be operational at the start of the IDA-18 period on July 1, 2017.
A company or entrepreneur seeking to establish a new venture or expand an existing enterprise can approach IFC directly.
The investment proposal can be submitted to the IFC field office that is closest to the location of the proposed project.