IFC offers innovative derivative, structured finance, and local currency products and solutions that enable clients to hedge foreign exchange, interest rate, and commodity price exposure.
Lending to the private sector in developing countries has traditionally been in the form of loans denominated in foreign currency such as the dollar or the euro. But the volatility in currency markets represent a major risk for companies with revenues in local currency.
IFC provides long-term local-currency solutions and helps companies access local capital markets. By matching the currency denomination of assets and liabilities, they can concentrate on their core businesses rather than worry about exchange rate volatility, expanding and creating jobs.
We have committed nearly $13 billion in local-currency financing across 60 currencies — more than any other international finance institution — through loans, swaps, guarantees, risk-sharing facilities, and other structured products.
Local Capital Market Development
Developing local capital markets is a strategic priority for IFC. Deep, efficient local capital markets create access to long-term, local-currency finance, and are the foundation for a thriving private sector—the key driver of jobs and growth. Sound local capital markets protect economies from capital-flow volatility and reduce dependency on foreign debt.
IFC promotes local capital markets by issuing local-currency bonds. We are often the first international, non-government issues of these bonds, paving the way for other issuers. Besides providing local currency finance to meet the needs of the private sector, we work with governments and regulators to promote reforms and policies supporting local capital markets and local currency finance.
IFC has issued bonds in 18 local emerging-market currencies, from Armenian dram and Chinese renminbi to Indian rupee, Peruvian soles, and Zambian kwacha.
Partial Credit Guarantee
A partial credit guarantee (PCG) represents a promise of full and timely debt service payment up to a predetermined amount. Typically, the sum that IFC pays out under the guarantee covers creditors irrespective of the cause of default. The guarantee amount may vary over the life of the transaction based on the borrower's expected cash flows and creditors' concerns regarding the stability of these cash flows.
IFC tailors guarantees to meet the needs of both borrower and creditors. They are structured to reduce the probability of default of the debt instrument and increase the recovery if default occurs. In general, IFC's objective is to offer the minimum amount of guarantee necessary to facilitate a successful transaction.
Portfolio Risk-Sharing Facilities
A risk sharing facility allows a client to sell a portion of the risk associated with a pool of assets. The assets typically remain on the client’s balance sheet and the risk transfer comes from a partial guarantee provided by IFC.
In general, the guarantee is available for new assets to be originated by the client using an agreed upon underwriting criteria, but in certain situations may also be used for assets that have been already originated. Typically, the client’s purpose in entering into a risk sharing facility with IFC is to help the client increase its capacity to originate new assets within an asset class in which IFC is interested in increasing its own exposure.
Securitization structures are most appropriate for a company that seeks financing but is unable to tap funding sources for the desired tenor and funding cost because of its perceived credit risk. In general, any asset class with relatively predictable cash flows can be securitized. The most common assets include: mortgages, credit cards, auto and consumer loans, corporate debt, and future revenues.
IFC invests in domestic or cross-border securitizations and provides credit enhancement to transactions through funded or unfunded participations, mainly at the mezzanine level.