1. Municipal Fund Global Finance for Local Needs

2. Table of Contents I. The World Bank Group and Municipal Finance II.The Municipal Fund III.The Tlalnepantla Water Conservation Project

3. The World Bank Group and Municipal Finance The World Bank has provided billions of dollars over the years to municipalities around the world - however, always with sovereign guarantees, as required by the Bank’s charter. The World Bank has also provided advice and knowledge support in the area of decentralization The International Finance Corporation (IFC) has traditionally invested in projects with majority private sector sponsorship. Thus, a gap exists for investment in well run sub-sovereign operations without sovereign guarantees

4. The Municipal Fund The Municipal Fund, a joint World Bank/IFC initiative seeks to help fill this gap by structuring and investing in sub- sovereign projects in emerging markets

5. Municipal Fund Background Established in May 2003, The Municipal Fund is a joint World Bank/IFC initiative to invest in projects at the state and municipal level - without taking sovereign guarantees. Brings together IFC’s credit assessment and market expertise and the World Bank’s public policy and capacity building experience to address the needs of the municipal finance market.

6. Municipal Fund Background We support investments made by states, municipalities and municipally controlled entities in numerous sectors including: water, wastewater, electricity, district heating companies, solid waste and urban transport. We can also support public-private projects such as leases, management contracts and concessions, either through investments on the municipal side or in private concessions/Special Purpose Vehicles where control is municipal or sub-sovereign.

7. Municipal Fund Operations The Municipal Fund invests from IFC’s balance sheet which is AAA and has full access to IFC’s strong credit assessment, financial product line (including local currency financing) and risk management capabilities (swaps, options, forward contracts). Full array of financial products - can provide debt, guarantees and equity/quasi equity/subordinated debt.

8. Our First Project (Tlalnepantla, Mexico) Bonds were sold successfully (US$9MM) First bond issue without intercept of federal transfers Direct municipal risk covered Transaction Structure Municipality/OPDM CERTIFICATE HOLDERS 1 st order Beneficiary Of the trust DEXIA/IFC 2 nd order Beneficiary of the trust 5 1 4 2 2) Trustee issues loan to Municipality and water Company and then transferred the net funds to water company 3 The Trustee issues certificates to investors. 5) Domestic investors buy Certificates; debt service funded from water fees. Certificates are enhanced by cash reserves and Dexia/IFC guarantee 4) Issue guarantee to cover P + I 3) Pledges proceeds from Water fees for the payment of the loan granted by the Trust. A PCG is the guarantee of full, timely debt service payment up to a predetermined amount (< initial principal.) The guarantee can be used for either a loan or bond. The guarantee is structured to reduce probability of default and increase recovery given default. IFC’s objective is to offer the minimum amount of guarantee necessary in order to facilitate a successful transaction. Partial Credit Guarantees (PCG ) Trustee

9. Municipal Fund Website Contacts: –Declan Duff, Director –Anita George –Sumeet Thakur –Gaetan Tiberghien –Alejandro Perez –Carlos Clemente Tel: (202) 473 9779 Fax: (202) 974 4310 Website: www.ifc.org/municipalfund Email: municipalfund@ifc.org