4 IFC Trust Funds Overall Trends The resources needed to alleviate poverty and advance development are too vast for governments to provide on their own, so a major part of the domestic and international financing needs of developing countries is expected to come from private investors. Indeed, most developing countries recognize that the private sector plays a critical role in driving innovation, creating jobs, and providing the goods and services needed to sustain and improve living standards. IFC fosters the development of the private sector in client countries through partnerships with donor and host country governments, other development institutions, philanthropies, and clients themselves, seeking to achieve maximum development impact with the solutions it offers through its firm-level interventions, its standard-setting, and its work to promote a business-enabling environment. IFC TFs are the main instrument for financing advisory services (AS), and are used for managing donors, clients, and IFC s contributions to AS. Trust-funded activities are fully aligned with IFC s Regional Strategies and are an integral part of IFC s overall business strategy. Until recently, IFC TFs primarily funded AS activities. However, in, as a response to the global financial crisis, donor trust-funded investments received an impetus with the launch of the Global Trade Liquidity Program (GTLP) (see Figure 24). Since then, donors have indicated increased interest in donor-funded investment programs and such similar programs as the Climate Change Fund. Figure 24. IFC Trust Funds: Cash Contributions by Activity Type 1200 1000 US$ millions 800 600 400 200 0 Advisory services Non-advisory services (donor-funded investments and other) 33
During contributions to and disbursements from IFC TFs increased sharply, primarily because of the GTLP initiative (see Figure 25). US$ millions Figure 25. IFC Trust Funds: Cash Contributions, Funds Held in Trust, and Disbursements 1,400 1,200 1,000 800 600 400 200 0 TF Disbursements Cash contribution Funds held in trust IFC s partnerships with donors proved to be especially important in, given the resource-constrained environment faced by countries grappling with the fallout from an unprecedented financial and economic crisis. After average annual growth of 10 percent from to, in, for the first time, cash contributions to IFC TFs exceeded US$1 billion, a 275 percent increase from the previous year s level. In addition, IFC received US$181 million in new signed commitments from 19 donor governments and several institutional investors and private partners for AS (see Figures 26 and 27). Figure 26. IFC Signed Donor Commitments for Advisory Services by Donor Group Governments 84% Figure 27. IFC Signed Donor Commitments for Advisory Services Gates Foundation Australia Japan Austria Norway $9 $9 $8 $10 $11 Canada Use of Funds Advisory Services Others $13 $21 $15 Switzerland $17 $43 GEF and CTF United Kingdom $26 Netherlands To help the private sector in emerging markets, IFC AS provide advice, problem solving, and training to companies, industries, and governments. IFC s experience shows that companies need more than financial investment to thrive they also need a legislative environment that enables entrepreneurship, and advice on business best practices. Around half of IFC s AS projects involve advising national and local governments on how to improve the investment climate and strengthen basic infrastructure, and the other half involve helping investment clients improve corporate governance and become more sustainable. IFC AS are divided into four business lines: Access to Finance, Investment Climate, Public-Private Partnerships, and Sustainable Business. IFC offers advice through various regional and global programs delivered through its more than 84 offices in 66 countries (see Figure 28). In, IFC AS portfolio comprised 736 active projects valued at more than US$850 million. 24 IFC TFs funded AS expenditures of US$268 million, of which 61 percent went to IDA-eligible countries. 5% Private partners/ foundations 11% Institutional/ multilateral 24 The value of AS projects represents the total budgeted value for the projects over their life funded by trust funds. 34
For the first time, cash contributions to IFC TFs exceeded US$1 billion. Figure 28. Regional Distribution for Advisory Services Middle East and North Africa Latin America and the Caribbean Europe and Central Asia South Asia 5% 2% 5% 4% 5% 1% 1% 4% 6% 5% 10% 4% 4% 8% 9% 4% 1% 3% 1% 3% East Asia and Pacific 8% 10% 6% 9% 4% Africa 3% 15% 9% 8% 5% Global 70% 67% 68% 64% 69% 35
Access to Finance IFC helps increase the availability and affordability of financial services, particularly to micro, small, and medium-sized enterprise clients. IFC s priorities are to build bank and nonbank financial institutions, develop financial infrastructure, and improve the legal and regulatory framework. At the end of, IFC had an active Access to Finance portfolio of 238 projects in 68 countries, valued at almost US$290 million. project expenditures totaled about US$50 million, of which 50 percent was in IDA-eligible countries and 14 percent in fragile and conflict-affected countries. Investment Climate IFC helps governments implement reforms to improve their business environment and encourage and retain investment, thus fostering competitive markets, growth, and job creation. At the end of, IFC had an active Investment Climate portfolio of 144 projects in 67 countries, valued at more than US$185 million. project expenditures totaled US$53 million, of which 75 percent was in IDA-eligible countries and 32 percent in fragile and conflictaffected countries. IFC provides investment climate advice to client governments in close collaboration with such donor partners as the Foreign Investment Advisory Service, the multidonor investment climate advisory platform. Most of IFC s programs are implemented from the field, where IFC works closely with its investment colleagues and WBG partners, including MIGA in particular. Public-Private Partnerships IFC advises governments on structuring publicprivate partnership transactions in infrastructure and other public services advice that helps governments achieve long-term economic growth and better living standards by harnessing the potential of the private sector to increase people s access to, and enhance the quality and efficiency of, such public services as electricity, water, health, and education. This advice, based on global best practices, balances the needs of investors with public-policy considerations and the needs of the community. IFC provides integrated solutions for small-scale infrastructure projects by combining advisory services to governments with capacity building for private sponsors; and it makes basic public services more affordable by advising small-scale providers on projects involving performance-based grants. IFC also builds the capacity of providers who might otherwise not have access to financial resources. IFC s record of success and reputation for objectivity and transparency make it the leading multilateral adviser in the field. At the end of, IFC had an active Public-Private Partnership portfolio of 91 projects in 53 countries, valued at more than US$130 million. project expenditures totaled about US$26 million, of which 40 percent was in IDA-eligible countries and 14 percent in fragile and conflict-affected countries. Sustainable Business IFC supports the sustainable development of markets that work for all members of society, building on its environmental and social performance standards to promote sustainable business practices among firms in sectors such as infrastructure, extractive industries, manufacturing, agribusiness, and services. IFC programs promote good corporate governance practices, build the capacity of small firms, advance women entrepreneurs, and encourage inclusive management and investment decisions. IFC works with companies to encourage improved practices toward decent employment and growth, address climate change, and promote sustainable agribusiness and forestry. IFC s Sustainable Business line of activity was created in July 2010 from the merger of the Corporate Advice and Sustainability business lines. At the end of, the two business lines together had an active portfolio of 263 projects in about 70 countries, valued at US$255 million. Combined project expenditures totaled about US$51 million, of which an average of 49 percent was in IDA-eligible countries and 9 percent in fragile and conflict-affected countries. 36
Donor-funded Investments IFC receives funds from member governments or their governmental agencies for investment purposes and invests these funds, along with its own resources, through trust funds. Donor funds to be used for investment purposes are provided to IFC on a grant basis or on a reimbursable grant basis, with interest, dividend, principal, and any other investment reflows to the donors (to the extent money flows back from the investments). IFC s portfolio of investment-making trust funds has recently grown in volume because of donor contributions to IFC s crisis response initiatives such as the GTLP, which account for 77 percent of IFC TF portfolio. Global Trade Liquidity Program The GTLP is a unique, coordinated global initiative that raises funds from governments, development finance institutions, and private sector banks to support trade in developing markets and address the shortage of trade finance resulting from the global financial crisis. It works through global and regional banks to extend trade finance to importers and exporters in developing countries. GTLP began its operations in May 2009 with targeted commitments of US$4 billion from public sector sources. Within three years, the program should be able to support up to US$45 billion in trade. As the global financial crisis evolves, the proven GTLP platform (operational processes, IT/MIS, human resources, standardized documentation, accounting, agency role, mobilization framework) is providing solutions to meet market demands as well as IFC s and program participants development priorities. GTLP maintains good geographical diversity. Latin America and the Caribbean and East Asia and Pacific represent 62 percent of the trade supported by the GTLP, Sub-Saharan Africa 19 percent, and South Asia 14 percent. A new disbursement of US$100 million to an existing Africa-dedicated facility will play an important role in further increasing IFC s reach in Africa. The GTLP is a unique global initiative to support trade in developing markets and address the shortage of trade finance resulting from the global financial crisis. 37