Fresh Ideas on Private Sector Development - by Category

Jan 18, 2022

Sustainability-Linked Finance—Mobilizing Capital for Sustainability in Emerging Markets

Sustainability-linked finance is designed to incentivize the borrower’s achievement of environmental, social, or governance targets through pricing incentives. Launched in 2017, it has now become the fastest-growing sustainable finance instrument, with over $809 billion issued to date in sustainability-linked loans and bonds. Yet these instruments are still nascent in emerging markets, which represent only 5 percent of total issuance to date. This note shares examples of recent sustainability-linked financing, including several involving IFC in various roles, to highlight how investors can utilize these new instruments in emerging markets and mitigate greenwashing risks.

English | 8 Pages—January—Note 110 | IFC 2022

Jan 13, 2022

Banking on FinTech in Emerging Markets

Despite near-universal access to financial services in advanced economies, financial exclusion is stubbornly persistent in many emerging markets, leaving huge swaths of low-income populations unbanked or underbanked. FinTech companies, which apply innovative technologies to deliver such services in new ways, have begun to tap into the enormous unmet demand that this represents. These companies are starting to thrive in emerging markets, though regulatory issues, particularly weak consumer protection measures, remain to be resolved in many countries. If these can be overcome, and more progress toward universal access to digital infrastructure can be made, FinTechs will continue to scale and spread.

English | 8 Pages—January—Note 109 | IFC 2022

Oct 19, 2021

The Emergence of New Data Ecosystems in Financial Services

This paper provides insights into recent business practices in Southeast Asia and market participants’ views on policy and regulation issues. The research is based on a survey of data issuers, intermediaries, and users (primarily lenders). It focuses on understanding the role of new and alternative data and data providers in making decisions about credit. Some of these new forms of data—including social media data, cell phone data, and data generated from business processes, transactional data, online activity, and others—are being harnessed to support credit-granting decisions. Naturally, a greater number of players now collect, store, handle, and disseminate data relevant for credit-granting purposes, an area that was previously the purview of credit bureaus and credit registries.

Jul 2, 2021

Blended Concessional Finance—The Benefits of Transparency and Access

Blended concessional finance, the combination of commercial finance from the private sector and development finance institutions (DFIs) with concessional finance from public and other sources, is increasingly being used by DFIs to support developmentally important projects where normal DFI or commercial finance is not available because of the high risks involved.

English | 8 pages—July—Note 105 | IFC 2021

Feb 28, 2021

Blended Concessional Finance and COVID-19

In the wake of the COVID-19 pandemic, governments, development institutions, and private companies are trying to find mechanisms to prevent the loss of essential economic activity under difficult and uncertain market conditions. In this context, blended concessional finance deployed by DFIs is already playing an even greater role than in the recent past, as it can help bridge critical financing gaps by placing important projects within the risk tolerance of private sector investors and DFIs, despite great market and financial uncertainty. Blended concessional finance will play a critical role to ensure that the response to the pandemic remains focused on the most difficult markets and, as efforts to rebuild are put in motion, the rebuilding is done in an inclusive and climate and gender-smart manner.

English | 8 pages—February—Note 99 | IFC 2021

Feb 3, 2021

Using Blended Concessional Finance to Invest in Challenging Markets—Economic Considerations, Transparency, Governance , and Lessons of Experience

This report examines IFC’s two decades of experience supporting pioneering projects with blended concessional finance. The report addresses issues such as why and when concessional finance is appropriate to support private sector projects; the key transparency, access, and governance processes required to implement projects efficiently and effectively; the principles for selecting and structuring projects; how to use blended concessional finance to invest in lower-income countries; and the different ways of structuring concessional finance facilities used by DFIs.

English | 64 pages | IFC 2021

Jan 6, 2021

Private Credit in Emerging Markets

Private credit broadly refers to nonbank lending to firms. Since the Global Financial Crisis of 2008–2009, private credit has grown considerably. Although the phenomenon of private credit is more predominant in the United States and the United Kingdom, it is also a growing asset class in emerging markets. Private credit appeals to borrowers because of bespoke, structured solutions, longer maturities, greater flexibility, and ease of doing business. Investors also like private credit, because of its attractive risk-adjusted returns. The global economic shock resulting from the COVID-19 pandemic has seen marked changes in production and consumption patterns in the real economy, with ripple effects in credit markets. Uncertainty and increased risk aversion spiked a rush to top up liquidity—the so-called ‘dash for cash’— primarily in the bank-intermediated credit and public capital markets.

English | 8 pages—January—Note 98 | IFC 2021

Nov 11, 2020

Crowdsourcing the Future of SME Financing

This publication showcases best articles from SME practitioners globally on what SME finance will look like in 2030.

Aug 28, 2020

Social Bonds Can Help Mitigate the Economic and Social Effects of the COVID-19 Crisis

Social bonds have become an increasingly popular fixed-income product since the Social Bond Principles were published in 2017, and their growth and popularity have accelerated in recent months due to the onset of the COVID-19 pandemic and the resulting need for new funding avenues to address the unforeseen economic and social disruptions. Since the outbreak of the crisis, global issuances of social bonds have risen considerably, and an increasing number of market participants have turned to IFC, a prolific and experienced issuer of social bonds, for advice on how to set up Social Bond Programs and Social Bond Frameworks. The hope now is that social bonds can become a significant method for financing projects that mitigate the socioeconomic impact of the current health crisis, and that the growing use of and interest in these bonds can be sustained post-crisis.

English | 8 pages – August – Note 89 | IFC 2020

Jun 1, 2020

Artificial Intelligence Innovation in Financial Services

Artificial intelligence technologies are permeating financial services sectors around the world. The application of these technologies in emerging markets allows financial service providers to further automate their business processes and to leverage new and big data sources to overcome obstacles— including the high cost of serving rural and low-income customers and establishing customer identity and creditworthiness—that prevent the delivery of financial services to many consumers. Realizing financial inclusion benefits through the adoption of artificial intelligence relies on its responsible adoption by firms, on competitive market settings, and on continued investment in the necessary infrastructure.

English | 8 Pages - June - Note 85 | IFC 2020

Jan 30, 2020

Creating Domestic Capital Markets in Developing Countries: Perspectives from Market Participants

Domestic capital markets that are deep, efficient, and well-regulated can create access to long-term, local-currency finance. Interviews with market participants reveal four important findings. First, there are two distinct phases of capital market development, an embryonic phase in which the government is predominant and a mature phase in which the capital market starts to serve the private sector. Second, capital market development requires continuous monitoring and policy interventions due to changing market stages. Third, while capital markets are a crucial source of large volume, long-term local currency finance, they often fail smaller countries and companies. Finally, as the capital market develops, intangible or “soft” factors become more important.

English | 8 Pages - January - Note 77 | IFC 2020

Jun 26, 2019

DARP—Creating Distressed Assets Markets – Lessons Learned Since the Global Financial Crisis and Opportunities for Investors in Emerging Markets Today

The rapid growth of credit over the last two decades has led to increased levels of non-performing loans across the globe. This can reduce lending and hamper economic recovery, creating a vicious circle that can be difficult to break. However, robust distressed assets markets can interrupt this loop, allowing for a return to financial stability and economic growth. IFC, through its Distressed Asset Recovery Program (DARP), is taking the lead in developing strong distressed assets markets in emerging economies.

English | 80 pages | IFC 2019

Jun 3, 2019

Basic Business Models for Banks Providing Digital Financial Services in Africa

Digital Financial Services have progressed rapidly since the first mobile-money services in East Africa a decade ago. Their early success in Kenya and Tanzania sent telecom firms, banks, technology firms, and development institutions scrambling to launch similar services. Yet many or most of these new services found only limited success of their own. The process delivered valuable lessons to the industry, however, including insights about scale, effective engagement models, the importance of adopting new technologies and rethinking corporate cultures, and the need for new digital financial services and products.

English | 6 Pages - June - Note 68 | IFC 2019

Apr 3, 2019

The Case for Responsible Investing in Digital Financial Services

Together with private sector investors, IFC has been leading a global effort to develop new guidelines for responsible investing in digital finance. These guidelines leverage IFC’s significant experience with the Equator Principles and responsible investing in micro, small, and medium enterprises (MSMEs) by focusing on strengthening governance, risk management, consumer protection, and financial well-being for the unbanked and underserved—as well as IFC’s experience as advisor and investor in the digital finance space.

English | 8 Pages - April - Note 67 | IFC 2019

Mar 29, 2019

Blended Concessional Finance: Governance Matters for Impact

Blended concessional finance, the combination of concessional funds with other types of finance on commercial terms, has great potential to mobilize capital and accelerate high-impact private sector investments in new and challenging markets. Yet full development of these efforts requires strong governance. IFC has been working to develop a robust governance system for blended concessional finance, guided by the Development Finance Institutions Enhanced Principles, a set of principles that employ special operating procedures and checks and balances when using blended concessional finance for private sector projects. These institutions need to learn from each other to ensure good governance, as the sharing of experiences is crucial to building global trust in the use of concessional funds. And to work well, governance structures need to be transparent and focus on solving potential conflicts of interest.

English | 8 Pages - March - Note 66 | IFC 2019

Nov 5, 2018

Blended Concessional Finance: Scaling Up Private Investment in Lower-Income Countries

Blending funds from private investors with concessional funds from donors and philanthropic sources has a strong potential to scale up investment in lower-income countries and thereby accelerate development. The use of blended concessional finance is already prevalent in lower-income countries representing over 70 percent of IFC’s commitments. Recent strategies from development finance institutions including the World Bank Group indicate that the relative share of lower-income countries in the global mix of blended concessional finance will increase further. Scaling up engagements in lower-income countries requires solutions tailored to local contexts, as well as the deployment of the whole spectrum of development finance tools, including advisory work, regulatory dialogue and reform, and a mix of blending instruments encompassing both pricing and risk mitigation features.

English | 6 pages - November - Note 60 | IFC 2018

Oct 30, 2018

How a Know-Your-Customer Utility Could Increase Access to Financial Services in Emerging Markets

Global efforts to counter terrorism financing and money laundering have led banks to terminate relationships with some communities, businesses, and individuals around the world. When a financial institution or intermediary cannot easily judge the identity and associated risks of a customer, it is often more efficient to avoid transacting with that customer altogether. This may disproportionately affect small banks, small firms, and low-income individuals in emerging and developing economies. This Compass Note explores an innovative solution that could help improve customer due diligence through a Know-Your-Customer (KYC) utility.

English | 8 pages – October – Note 59 | IFC 2018

Oct 26, 2018

Competition Works: Driving Microfinance Institutions to Reach Lower-Income People and the Unbanked in Peru

Competition from commercial banks is prompting microfinance institutions in urban areas of Peru and other Latin American nations to provide more service to lower-income groups. Where higher-income clients are already served by commercial banks, microfinance institutions compete by attending to a new demographic, while continuing to serve higher-income clients where commercial banking services are scarce.

English | 4 pages – October – Note 58 | IFC 2018

May 16, 2018

Modelo Peru: A Mobile Money Platform Offering Interoperability Towards Financial Inclusion

Like most emerging markets, Peru suffers from low banking penetration and faces challenges to providing financial services. Beginning in 2015, a strategy called Modelo Peru emerged as a collaboration between financial institutions, telecom companies, and the government, with the goal of launching a mobile money platform to better serve the nation’s unbanked and underbanked. The platform’s main innovative feature is interoperability among these three groups to achieve scale and breed competition among e-money issuers.

English | 9 pages - May - Note 54 | IFC 2018

Apr 19, 2018

Crowding-In Capital Attracts Institutional Investors to Emerging Market Infrastructure Through Co-Lending Platform

Financing infrastructure in emerging markets is a critical global challenge for sustainable development. Through a new IFC program, private institutional investors can directly participate in the evolving infrastructure asset class in emerging markets. The program, IFC’s Managed Co-Lending Portfolio Program (MCPP) for Infrastructure, creates a structure that overcomes several hurdles that have inhibited the flow of private capital to emerging market infrastructure projects. Read more.

English | April 2018, Note 53

Apr 19, 2018

Crowding-In Capital: How Insurance Companies Can Expand Access to Finance

Development institutions, governments, and the investment community have been exploring ways to increase private capital flows to support critical development projects in emerging markets. A new financing mechanism applies the risk-bearing capacity and know-how of insurance companies to allow these companies to take what are, in many cases, their first insurance exposure to markets and counterparties. This innovative credit insurance solution, which we call “Credit Mobilization,” is being pioneered to provide long-term funding to developing country banks, and may offer significant potential for scale-up and replication.

English | Note 52 - April 2018

Jan 26, 2018

Increased Regulation and De-risking are Impeding Cross-Border Financing in Emerging Markets

Correspondent banking relationships connect banks and people across borders and are critical to finance and trade. They are a vital link between emerging markets and the broader global economy. Yet efforts to combat money laundering and the financing of terrorism have increased compliance requirements for banks. Difficulties adhering to these requirements and increased costs associated with them threaten the ability of banks to serve their customers, while also eroding the number and quality of correspondent banking relationships. A recent IFC survey shows that many banks are feeling the pressure of increased regulation and de-risking, and emerging market banks are bearing the brunt of it.

English | 7 Pages - January - Note 48 | IFC, 2018

Mar 28, 2017

How Fintech is Reaching the Poor in Africa and Asia: A Start-Up Perspective

This note explores the way traditional banks and financial technology companies, or FinTechs, interact in Africa and Asia, and their ability to offer innovative digital financial services that grant unbanked individuals access to financial transactions. The FinTech sector is experiencing explosive growth in both continents, but while Asian banks have managed to efficiently integrate with FinTech solutions, African banks have been slower to adapt to this change. Still, the outlook for mobile banking remains positive, and its prevalence will boost the financial industry in both regions.

English | 6 Pages - March - Note 34 | IFC, 2017

Nov 18, 2016

De-Risking by Banks in Emerging Markets – Effects and Responses for Trade

Bank de-risking is a reality. Increased capital requirements, coupled with rising Know-Your-Customer, Anti-Money-Laundering, and Combating-the-Financing-of-Terrorism compliance costs have resulted in the exit of several global banks from cross-border relationships with many emerging market clients and markets, particularly in the correspondent banking business. A subset of this business, trade finance, is also at risk, with potential consequences for segments of emerging market trade. Those involved in addressing the de-risking challenge must focus on compliance consistency and effective adaptation of technological innovations.

English | 6 Pages - November - Note 24 | © IFC, 2016

Nov 1, 2016

Mitigating the Effects of De-Risking on Remittances

Anti-money laundering/combating-the-financing-of-terrorism laws are grounded in reasonable national security concerns—preventing the cross-border flow of funds to terror or criminal groups. But these policies can have unintentional and costly consequences, in particular for people in poor countries. Those most affected are likely to include the families of migrant workers, small businesses that need to access working capital or trade finance, and recipients of life-saving aid in active-conflict, post-conflict or post-disaster situations.

English | 6 Pages - November - Note 22 | © IFC, 2016