1. Capital Markets and Resource Mobilization
IFC presentation to:
THIRD REGIONAL CONSULTATION ON
“RETHINKING THE ROLE OF NATIONAL
DEVELOPMENT FINANCE INSTITUTIONS IN AFRICA”
By Louis-B. Ngassa Batonga
Principal Investment Officer
IFC-Johannesburg Office
November 2006

2. Growing interest of major international financial institutions in financing private sector

3. Changes in the allocation of IFI resources over the recent years
Declining share of the Sub-Saharan Africa (9.7% of total allocations of US$23.6 billion in 2005 as compared to 12.1% of the year 2000 US$10.3 billion allocations)
Increased shares of the Europe and Middle-East North Africa regions, with Europe now accounting for 50.8% of total allocations
More resources being channeled into Financial Markets: 45.1% of the allocations in 2005 as compared to 29.5% in 2000.
Such changes create new challenges to DFIs and for institutions such as IFC. Hence the need to rethink their strategies.

4. IFC’s Five Strategic Priorities
Strengthen the focus on Frontier Markets, in particular Africa, with emphasis on technical assistance, investment climate and SMEs
Build Long-term partnerships with emerging global players (South-South) capitalizing on the strengths of clients in China, India, Brazil, South Africa, etc.
Help expand the sustainability agenda
Address constraints to private sector growth in infrastructure, health and education
Continue to emphasize local financial market development

5. IFC Role in Mobilization and capital Markets
Mobilization of 3rd party capital, a major IFC role
Investment criteria limits IFC participation, forcing mobilization
Capital Market development, also seen as a major role for IFC
Development of sustainable financing
Clients want IFC to mobilize funding
Top 6 Reasons African Borrowers Work with IFC

6. How IFC does Mobilization
B Loans
- Open local markets to foreign banks and introduce them
to clients
- Help to demonstrate mis-perceptions of risk in these
markets
Local Currency
Helps to increase the depth and liquidity of cross border swap markets
Swap market development is an important factor for overall capital market development
Securitization and Guarantees
Help to deepen and broaden domestic financial markets
Help to improve risk appetite of domestic financial institutions

7. IFC Mobilization: B Loan Program
Began in 1957
Has mobilized US$25 billion
Maintains a portfolio of US$ 5.1 billion
Mobilized over US$1.6 billion in FY06 (US$1.1 billion in FY05)
In FY06:
Average B Loan Size: US$60m
Average Tenor: 7.1 years

8. Extra slide in case of questions.
B Loan Structure
Loan Agreement
Borrower
A + B Loans
Participation
Agreements
One loan agreement - IFC is lender of record and administers entire loan
IFC fully shares project risks with participants
Offshore participants, not per se local currency
B Loan
Participants
Extra slide in case of questions.

9. IFC’s Local Currency Financing Instruments Using Derivatives
Two main local currency alternatives
Local currency swaps
Overlay swaps
Local Currency Swap: IFC swaps its own hard currency financing for local currency at time of disbursement
Overlay Swap: IFC assists in obtaining local currency swap for existing third party loans
Need the following to implement
Existence of long term swap market
Regulatory approval
IFC able to provide swaps in 8 African countries

10. IFC’s Local Currency Loans and Swaps
South Africa : Up to 20 years, fixed and floating rate based on JIBAR and Prime
Nigeria : Up to 10 years, fixed and floating rate based on 90 / 180 Day T-Bills
Ghana : Up to 7 years, fixed and floating rate based on 90 / 180 Day T-Bills
Kenya : Up to 10 years, fixed and floating rate based on 90 / 180 Day T-Bills
Botswana : Up to 15 years, fixed and floating rate based on government bond yields
Tanzania : Up to 7 years, fixed and floating rate based on 90 / 180 Day T-Bills
Zambia : Up to 7 years, fixed and floating rate based on 90 / 180 Day T-Bills
Uganda : Up to 7 years, fixed and floating rate based on 90 / 180 Day T-Bills
(*) For variable rate instruments other indexes than the ones mentioned above
can be considered on a case by case basis

11. Note to presenter: list the products you will discuss
IFC’s Existing Portfolio and Pipeline of Local Currency Transactions
Existing Portfolio
21 projects in 4 countries
1st transaction was in 1997
US$210 million equivalent committed
US$162 million disbursed
Transactions completed for financial institutions and the general manufacturing sector, agribusiness and oil & gas sectors
Current Pipeline
Over 10 projects in about 6 countries
Current local currency transactions in the pipeline are targeting the financial services industry, the housing sector, agribusiness companies and the health & education sector
Note to presenter: list the products you will discuss

12. Structured Finance and Guarantees
Partial Credit Guarantees (PCGs)
IFC irrevocably guarantees a portion of the debt service due on a local currency bond or loan
Partial debt service coverage insures that domestic investors take at least a portion of the borrower credit risk
Risk-sharing Facilities
Provides portfolio insurance for banks lending local currency to domestic borrowers.
IFC guarantees part of the principal balance of an on-balance sheet portfolio of loans
Securitization
Allows clients to raise local currency funding through sale of assets from their balance sheet
Can be used to issue debt at ratings higher than that of the borrower itself
IFC credit enhances securitization through provision of guarantees on part of the capital structure or through purchase of subordinated tranches.

13. Structured Finance at IFC
Completed 62 transactions in 22 different countries
Mobilized a total of US$5,434mn (US$1,579mn during FY06) with IFC’s credit exposure of only US$1,034mn

14. Capital Market Development
B Loans
Opens market to foreign banks and introduces them to clients
Helps to demonstrate mis-perceptions of risk in markets
Local Currency
Helps to increase the depth and liquidity of cross border swap markets
Swap market development important for overall capital market development
Securitization and Guarantees
Helps to deepen and broaden domestic financial markets
Helps to improve risk appetite of domestic financial institutions

15. IFC Financial Markets Strategy for the Future
Continue to develop existing products
B Loans, Local Currency, Structured Finance
Work on direct development of capital markets
Development of the Nigeria Bond Market through Technical Assistance
Maintain strong collaboration with other financial institutions, including DFIs