IFC has a long record of innovation in tapping new sources of capital to support investment in emerging markets.
For small businesses in developing countries, obtaining a loan is difficult. It could soon become much more so.
In the wake of the global economic crisis, regulators are eager to find ways to keep taxpayers from having to pay for bank bailouts. Under new global rules, banks will have to raise more than $600 billion in capital to cover potential losses. Banks will face hard choices as the rules take effect in 2013.
One choice could be to reduce lending—particularly to small and medium enterprises in emerging markets, where capital requirements are relatively high.
We anticipated that challenge—and helped establish an innovative fund to enable banks to increase loans to emerging-market SMEs without running afoul of capital limits. This year, IFC invested $100 million in the new Capital Release and Redeployment Fund, which is managed by the private-equity firm, Robb & Company.
The fund allows banks to transfer some of the credit risks of SME loans to third parties, freeing up capital for further lending. It is expected to attract an additional $300 million from other investors, which would facilitate up to $4 billion in lending to SMEs in emerging markets.
IFC has a long record of innovation in tapping new sources of capital to support development in emerging markets—especially in times of crisis and uncertainty. Private-equity investment can play a significant role here, as our experience shows.
We are a significant backer of private-equity funds in emerging markets, and have invested in them since the 1980s. Our private-equity portfolio of $3 billion is invested in about 180 funds across the world. By investing in these funds, we bring our performance standards and policy requirements to them, which can help enhance the environmental and social performance of their projects.
We back private-equity funds because they provide capital and expertise to small and medium enterprises. In 2011, our private-equity investments helped support about 795,000 jobs—nearly a third of all jobs provided by our clients.
We are often the first private-equity investor in some of the poorest countries. This year, we made our first private-equity investment in earthquake-devastated Haiti. We expect our $10 million investment in Leopard Capital’s Haiti Fund to support affordable housing, renewable energy, and food production.