and the Global SME Finance Facility Presenter

Transcription

1 Lunchtime Session - B Blended Presentation Finance Title at IFC and the Global SME Finance Facility Presenter Moderator Affiliation Anita Bhatia Presenters Christian Grossmann Wendy Teleki May 15-16, 2012 Paris

2 Context: Blended Finance at IFC IFC operates as both a development and financial institution Mandate to develop markets and use market based financing as benchmarks Projects are expected to cover their full costs, including a reasonable return on capital IFC provides its financing on commercial terms IFC has more than a decade of experience blending donor funds with its own to catalyze projects with strong social/developmental benefits Experience has been in few key sectors e.g. climate Growing interest by donors for IFC to use blended finance approaches to increase reach and development impact 2

3 Term: Blended Finance IFC uses the term blended finance to refer to providing of finance: to a private sector investment project on terms more favorable than market terms when it is expected that the need for below market terms is time bound IFC s minimum concessionality approach limit the implied subsidy to only what is necessary to catalyze the investment The subsidy might be structured through: grants the provision of risk sharing products on below-market terms, the provision of debt financing with differences in rate, tenor, security or rank or through equity investments with ex-ante expectations of below-market returns 3

4 Requires a form of subsidy Area of Focus Fully Commercial Why would IFC consider Blended Finance approaches? Market/fully commercial activities Commercial and developmental (DFIs) Not fully commercial Gap: In need of temporary subsidy Not fully commercial Gap: In need of LT/permanent subsidy Circumstances where : lack of commercial viability (because of perceived/real risks, or costs) results in underinvestment in activities that can lead to high social benefits, but where risk/reward balance for private sector can be achieved over time In some cases, public sector will undertake such investment (e.g.: Govt., NGOs) Blended Finance to private sector can fill the gap in the market; catalyze investments Public Sector (Government/NGOs) 4

5 Future Directions Piloting beyond Climate Change Management has decided to focus on three areas to pilot application of approach: Climate Change Agribusiness SMEs IDA/Fragile States/Gender included as cross-cutting themes Purpose in all areas will be the same: to catalyze private investments with strong social benefits/development impact Blended finance projects are expected to remain a small portion of IFC s overall business In each case, minimum concessionality principle will be applied so subsidies are kept to only catalyze investment Will not crowd out private financing or IFC financing; will only be used to catalyze investment that wouldn t otherwise happen without such support 5

6 Global SME Finance Facility Example of a platform for commercial and blended funding and technical assistance to address the global SME finance gaps 6

7 Global SME finance Gap is $700 -$850 billion, stunting job creation The Facility is currently funded for Africa and South Asia (including Pakistan), and subject to additional donor funding will expand to East Asia, Eastern Europe/Central Asia and LAC. Finance is a key constraint for SMEs in all regions, and particularly acute in Africa and MENA In South Asia the key challenge will be bringing informal SMEs into the financial system. The volume of funding required in East Asia is particularly high, but off a baseline of much deeper financial markets and a correspondingly higher penetration by FIs of the SME market Financing gap for formal SMEs in Developing Countries* 7

8 Africa Facility Overview Global Facility Participating FIs SMEs Donors IFI/DFIs S.Asia Europe LAC E.Asia MENA INVESTMENT SERVICES Commercial Funding from IFIs/DFIs (up to $1.4 billion) Concessional Funding from Donors (up to $400 million ) A2F Advisory Services FI Capacity Building (target $50 million) Financial Infrastructure (target $15 million) Commercial or blended funding to FIs through: Credit Lines Credit Enhancement Risk Sharing Facilities Capacity Building for Banks & NBFIs Global, Regional & Local Banks and NBFIs in the SME business Up to $4 billion new funding available for SMEs in emerging markets (cycled 3-4 times over 10 years) 600, ,000 unserved or underserved SMEs reached over 10 years Supports capacity of banks to lend and manage SME risk, and strengthens SMEs ability to monetize assets 10 year timeframe 8

9 Product Mix Facility provides a full range of tools to address SME finance gaps Credit Lines for SME Financing Funded lines to expand investment and working capital lines to underserved SME segments, especially in illiquid markets. Can use blended funds to expand IFIs risk appetite with regard to grace periods, subordination, higher risk /lower security or local currency positions Focus on underserved segments, e.g., women, fragile, climate, agri SMEs Risk Mitigation & Enhancements Risk Sharing Facilities / Partial Credit Guarantees and other Donor funded first loss helps underpin risk taking by IFIs and client banks Enhances risk taking capacity and provides capital relief via low risk weightings Avoids FX mismatches and encourages domestic resources for SME financing Capacity Building for FIs Help FIs develop new approaches, products and systems to step up their financing for SMEs on a sustainable basis Promote sub-sector focus where there is a need: women owned SMEs, agrifinance, etc. Build capacity of FIs to promote SME finance investment in the institutions (linking support to SME Facility or other) Financial Infrastructure Develop credit reporting infrastructure based on country needs Support development of secured transactions, collateral registries, legal and regulatory framework Build capacity of public/private stakeholders through advice and training 9

10 Initial round to date $600m from IFIs such as IFC, KfW, EIB and OFID $62m from DFID for blended finance $52m from DFID for capacity building, financial infrastructure and related G20 efforts DFID funding for 20 selected countries in Africa and South Asia Targets Mid-Term Review (Mar 2015) Final Targets (Mar 2019) Total FIs receiving concessional funds Total FIs reached receiving AS (i) 25% of FIs receiving support with advisory services in fragile countries or frontier markets (ii) 20% of PFIs receive sustainable energy support to strengthen SME clients # of SMEs reached with loans 100, ,000 (i) 25% of women headed SMEs 25,000 50,000 (ii) 25% in conflict affected/fragile countries 25,000 50,000 Volume (USD) of additional loans disbursed by FIs $4 billion $8 billion (i) 25% of women headed SMEs $1 billion $2 billion (ii) 25% of SMEs reached in countries specified in conflict affected/fragile countries $1billion $2 billion Number of jobs created 500,000 1 million 10