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

Growing interest of major international financial institutions in financing private sector
IFI Private Sector Volumes by Major Groups
25
20
15
10
5
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Other MDB
EDFI
OPIC
EIB
EBRD
IFC

• 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.

IFC’s Five Strategic Priorities
1.
Strengthen the focus on Frontier Markets, in particular
Africa, with emphasis on technical assistance, investment climate and SMEs
2.
Build Long-term partnerships with emerging global players (South-South) capitalizing on the strengths of clients in China, India, Brazil, South Africa, etc.
3.
Help expand the sustainability agenda
4.
Address constraints to private sector growth in infrastructure, health and education
5.
Continue to emphasize local financial market development

• 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
16%
14%
12%
10%
8%
6%
4%
2%
0%
Stam p of
Approval
Long-term
Partner
Long Tenors Mobilization Ris k Mitigation Pricing

• 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

• 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

Participation
Agreements
B Loan
Participants
Loan Agreement
Borrower
A + B Loans
• 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

’
• 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

’
• 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

’
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

• 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 .

 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

• 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

• 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