IFC Crisis Response Initiatives

1
IFC Crisis Response Initiatives
Targeted, Temporary and Timely
April 23, 2009
Confidential Information Purpose Only
2
Agenda

1. Overall Strategy
2. Advisory Services Financial Crisis Response
3. Global Trade Liquidity Program and Trade Finance
   Initiatives
4. Capitalization Fund (BCF)
5. Microfinance Enhancement Facility (MEF)
6. Infrastructure Crisis Facility (ICF)
7. Global Food Fund
8. IFIs Joint Action Plan in Central and Eastern
   Europe
9. Other Projects
10. Co- Investments Opportunities

Confidential Information Purpose Only
2
3
Crisis Presents Multiple Challenges

• 1. Lack of Liquidity As crisis evolves, money
  has moved towards low risk (government T bills,
  large corporates, short-term assets) affecting
• Trade - Availability of trade finance declining
• Infrastructure - Projects with maturity
  mismatches coming to a halt
• Microfinance A major cutback, not a
  priority/core business for commercial lending
• Agribusiness - As credit is drying up,
  significant drops in crops next year expected
• SME Lending Drying up but great job creation
  role once economy starts to recover
• 2. Weakened Financial Infrastructure Weakened
  financial intermediaries cut back lending,
  investment business environment becomes more
  challenging
• 3. Bank Recapitalization As losses mount,
  recapitalization of the banking sector is needed
• 4. Debt Restructuring Even strong businesses in
  emerging markets struggle to roll over maturing
  debt
• 5. Troubled Assets Collapse of real and
  financial sector leads to major NPL problem

Confidential Information Purpose Only
4
Phased Approach Responds to Market Needs

• Pillars of Success
• Mobilization working with Partners
• Job Creation
• Continued Focus on Frontier Markets Bottom of
  the Pyramid

1. Liquidity
2. Financial Infrastructure
3. Capital
4. Troubled Assets
Confidential Information Purpose Only
5
Agenda

• Overall Strategy
• Advisory Services Financial Crisis Response
• Global Trade Liquidity Program and Trade Finance
  Initiatives
• Capitalization Fund (BCF)
• Microfinance Enhancement Facility (MEF)
• Infrastructure Crisis Facility (ICF)
• Global Food Fund
• IFIs Joint Action Plan in Central and Eastern
  Europe
• Other Projects
• Co- Investments Opportunities

Confidential Information Purpose Only
5
6
Advisory Services Financial Crisis Response

• Board approval date December 2008
• Where we are
• Mobilization Re-allocating and re-deploying own
  (FMTASS) resources.
• Commitments from Austria - 6.7m, Finland - 1m,
  Luxembourg - 0.9m, Netherlands - 0.5 m
  preparing donor agreements mobilizing additional
  donor funds to meet the target of 40-60m over
  FY09-11
• Access to Finance reviewed all existing advisory
  programs identified programs to be adjusted and
  focused on crisis response identified staff to
  be re-assigned to a crisis response work started
  crisis response advisory work in the regions with
  client workshops, stress-testing support, and
  individual assignments for financial
  institutions set-up an IFC-WB coordination group
  on Distressed Assets Resolution
• Business Enabling Environment initiated
  development of new insolvency product and
  scaling-up of the Doing Business Reform Advisory
  program established task force to develop
  investor aftercare approach reviewing remainder
  of the BEE portfolio for necessary adjustments
• Corporate Advice with first donor commitments in
  place, starting roll-out of Board Leadership
  training program and other corporate governance
  programs in critical regions (e.g. E. Europe)
  need additional funding for extending systemic
  interventions going forward
• Delivery platform IFCs established advisory
  services capacity

Confidential Information Purpose Only
6
6
7
Agenda

• Overall Strategy
• Advisory Services Financial Crisis Response
• Global Trade Liquidity Program and Trade Finance
  Initiatives
• Capitalization Fund (BCF)
• Microfinance Enhancement Facility (MEF)
• Infrastructure Crisis Facility (ICF)
• Global Food Fund
• IFIs Joint Action Plan for banking sector in
  Central and Eastern Europe
• Other Projects
• Co- Investments Opportunities

Confidential Information Purpose Only
7
8
GTLP and GTFP - The Opportunity

• A. Trade finance is the lifeblood of US14
  trillion annual global commerce and one of the
  most fundamental engines for global trade at all
  stages of the supply chain, especially in
  emerging markets.
• Current Market Conditions Availability of trade
  finance declining
• Despite global slowdown, growing shortfall in
  trade financing continues to constrain global
  trade
• Driven by scarcity of capital, increased costs
  and liquidity premiums, heightened risk
  perceptions, loss of market participants
• Swiftly aggregating resources under simple and
  efficient structures can enhance impact in the
  global markets economies of scale and
  timeliness and flexibility (in both setup and
  wind down).
• Global Trade Finance Program (GTFP) offers a
  stand-by letter of credit, which is extended to
  cover the trade finance risk commercial banks do
  not want to take.
• Global Trade Liquidity Program (GTLP) aims to
  address increased risk and liquidity constraints
  with a funded trade support program.

Confidential Information Purpose Only
8
8
9
GTLP Investment Approach

• A. IFC commits US1 billion and mobilizes 3-4
  times over 2-3 years from DFIs leverage impact
  US45 billion financing
• B. Partner with 6-8 global or regional banks each
  to channel liquidity to i) the banks global or
  regional correspondent trade network, or ii) the
  banks client network in a specific sector(s)
  global reach beyond individual DFI capacity
• C. Primary investment structure funding and risk
  split 4060 between IFC/DFIs (40) and
  global/regional banks (60) exceptions possible
  (eg, fully funded loan to a bank).
• D. GTLP is designed to fund trade transactions
  limited to 270 days and self liquidating. Call of
  funds ramp-up according to demand
• IFC will oversee the GTLP under guidelines and
  criteria agreed with DFIs in a Master
  Participation Agreement
• Dialogue ongoing with potential mobilization
  partners IFC, CDC-UK, AFDB, CAF, OFID, Proparco.
  Others under discussions include EIB, SIDA,
  Canada MoF, Netherlands, Chinese authorities.
• Initial partner banks could include Standard
  Bank, StanChart, Rabobank, BNP Paribas, JPMC,
  Commerzbank, HSBC, and Citibank.

Confidential Information Purpose Only
9
10
GTLP Planned Legal Structure
IFC PRE-APPROVED PARTICIPANT BANKS Global Reach
IFC PRE-APPROVED PARTICIPANT BANKS Regional Reach
10
10
11
GTLP - Pipeline

• A. IFC advancing with three international banks
  to launch US500 million trade facilities each
• Program Partners provide up to US500M (40) per
  facility with the Utilization Bank funding the
  balance (60). 100 emerging market banks in
  their global networks
• Beneficiaries expected to be real sector
  enterprises in Asia, Africa, E. Europe, Middle
  East and Latin America.
• B. IFC advancing with a global bank to launch a
  US250 million pre-export facility for
  agri-exports to Asia Europe
• Focus on LATAM producer/exporters in Argentina,
  Bolivia, Chile, Colombia, Mexico, Paraguay, Peru
  and Uruguay.
• Clients are established exporters in sectors that
  are considered of systemic important to the
  participating countries (eg, soybean in Argentina
  and Paraguay or fishmeal in Peru).
• C. IFC advancing with a leading African bank to
  launch a US250 million fully funded loan program
  for trade finance transactions
• Beneficiaries expected to be SMEs in Kenya,
  Angola, Ghana, Nigeria, Mauritius, Malawi,
  Mozambique, Seychelles and Zambia.

Confidential Information Purpose Only
11
11
12
Agenda

• Overall Strategy
• Advisory Services Financial Crisis Response
• Global Trade Liquidity Program and Trade Finance
  Initiatives
• Capitalization Fund (BCF)
• Microfinance Enhancement Facility (MEF)
• Infrastructure Crisis Facility (ICF)
• Global Food Fund
• IFIs Joint Action Plan in Central and Eastern
  Europe
• Other Projects
• Co- Investments Opportunities

Confidential Information Purpose Only
12
13
Bank Capitalization Fund Opportunity

• The global financial crisis that erupted in the
  first half of 2008 is now leading to the worst
  global economic downturn in 80 years
• The slowdown is beginning to hit banks hard as
  default rates on their credit portfolios rise
  sharply, leading to higher loss provisions, lower
  earnings and an eroded capital base
• The crisis poses major challenges for national
  and global leaders and requires several
  coordinated action on several fronts
• address the liquidity and capital needs of banks
• avert devastating declines in economic activity
  that would adversely and disproportionally impact
  low-income groups
• RF aims to address the capital shortfalls that
  emerging market banks are likely to face over the
  coming months as a result of the knock-on effects
  of the global financial crisis, while generating
  attractive financial returns

Confidential Information Purpose Only
14
Bank Capitalization Fund Investment Approach

• BCF is a global private-equity fund managed by a
  subsidiary of IFC
• Initial Capital Commitments of US3 billion,
  divided as follows

Vehicles First Closing Investors Maximum Fund Size
Equity Fund (EF) US1,275 million IFC US775 million US2,500 million
Equity Fund (EF) US1,275 million JBIC US500 million US2,500 million
Subordinated Debt Fund (SDF) US1,725 million IFC US225 million US2,500 million
Subordinated Debt Fund (SDF) US1,725 million JBIC US1,500 million US2,500 million

• Products equity, equity-related instruments and
  subordinated loans
• Investment objectives stabilize vulnerable
  emerging market banking systems while generating
  financial returns with an attractive risk-return
  profile
• Investment strategy long-term capital
  appreciation through non-controlling minority
  stakes in banks
• Target banks banks that have large market shares
  and which, while viable or undergoing major
  restructuring, are in need of additional capital
• Exit strategy as market conditions improve and
  alternative sources of capital become available
  to portfolio banks, the Fund will seek to sell
  its investments in the public markets or to other
  private investors

Confidential Information Purpose Only
15
Bank Capitalization Fund Structure for BRF
16
Bank Capitalization Fund Bank Eligibility
Criteria

• Private sector systemic banks
• Minimum 7 market share (according to IMFs
  claims on private sector data)
• Equity Fund (EF)
• not less than 10, except for banks with market
  share exceeding 20 where the minimum
  participation would be 5
• Subordinated Debt Fund (SDF)
• Only invest if EF invests an amount equivalent to
  at least 75 of the SDF investment
• Subject to IFCs normal Social and Environmental
  Standards
• Up to 15 of the Fund may be invested in
  state-owned banks
• Anti-Cherry Picking IFC will not make
  stand-alone investments in eligible banks unless
  the Fund rejects such investments

Confidential Information Purpose Only
17
Bank Capitalization Fund Diversification Criteria

• The diversification criteria are as follows

Investments per vehicle EF Maximum amount EF Maximum amount SDF Maximum amount SDF Maximum amount
Investments per vehicle US1,275 million US2,500 million US1,725 million US2,500 million
Per Bank 10 US127 million US250 million US173 million US250 million
Per Country 20 US255 million US500 million US345 million US500 million
Per Region 25 US318 million US625 million US430 million US625 million
Confidential Information Purpose Only
18
Agenda

1. Overall Strategy
2. Advisory Services Financial Crisis Response
3. Global Trade Liquidity Program and Trade Finance
   Initiatives
4. Capitalization Fund (BCF)
5. Microfinance Enhancement Facility (MEF)
6. Infrastructure Crisis Facility (ICF)
7. Global Food Fund
8. IFIs Joint Action Plan for banking sector in
   Central and Eastern Europe
9. Other Projects
10. Co- Investments Opportunities

Confidential Information Purpose Only
18
19
Microfinance Enhancement Facility (MEF)
Opportunity

• Context
• Global microfinance sector reached US30 billion
  in assets and 130 million clients.
• 15 years of very successful growth exposed to
  various types of crises
• These were previously regional/country-wide
  phenomena, which were easier to counterbalance.
  However, The greater integration of microfinance
  into the financial sector commercialization of
  the industry 2 very necessary developments to
  foster the rapid growth broad outreach of the
  industry have drastically changed the
  beneficial circumstances, exposing the industry
  to new threats.
• Impacts of the Financial Crisis
• Strong MFIs cannot tap commercial refinancing for
  growth, either through loans, securitizations or
  deposit mobilization.
• Resources for refinancing are quickly drying up
  locally and internationally.
• Bank lines are being pulled and in some cases
  deposits are being eroded.
• Financings needs reach US1.8 billion through
  2010.

Confidential Information Purpose Only
20
Microfinance Liquidity Facility Structure
Investors
Subscriptions/redemptions of shares
General fees (auditing, regulatory fees, TA)
Subfund Microfinance Liquidity Facility (MLF)
Investment Manager
Charge of asset mgmt fee B
Charge of asset mgmt fee C
Charge of asset mgmt fee A
Portfolio C
Portfolio B
Portfolio A
21
Microfinance Liquidity Facility Structure
The MLF is a SICAV SIF incorporated in
Luxembourg with three asset pools (for each
investment manager). MLF will have a board
Investement Committee
22
MEF Pipeline
Targeted Pipeline by Region
Approved 1st Loans to MFIs on February 5, 2009
Confidential Information Purpose Only
23
Agenda

1. Overall Strategy
2. Advisory Services Financial Crisis Response
3. Global Trade Liquidity Program and Trade Finance
   Initiatives
4. Capitalization Fund (BCF)
5. Microfinance Enhancement Facility (MEF)
6. Infrastructure Crisis Facility (ICF)
7. Global Food Fund
8. IFIs Joint Action Plan in Central and Eastern
   Europe
9. Other Projects
10. Co- Investments Opportunities

Confidential Information Purpose Only
23
24
ICF Opportunity

• As a consequence of the global financial crisis,
  private infrastructure in developing countries is
  severely affected
• Projects under development are delayed/cancelled,
  existing projects are at risk due to refinancing
  requirements
• Governments and project sponsors reluctant to
  begin new infrastructure development
• Current financing market is unreceptive slowing
  world growth, withdrawal of equity and term
  lending from the private sector, higher interest
  rates, lower commodity prices in the medium term
• IFC and World Bank research shows that between
  67-120 billion of existing and/or new projects
  could be delayed or suspended due to the
  financial crisis.
• Creation of infrastructure crisis facility (ICF)
• To act as a substitute for temporarily not
  available commercial financing
• To expand resources available to IFI club to
  increase available pool of funds
• To signal to sponsors continued availability of
  term debt

Confidential Information Purpose Only
25
ICF Investment Approach
Components Funding Min. Commitment Potential Partners/Investors Maximum Size
Debt Trust Mezzanine loans, grants, senior concessional loans US1.5billion Governments or their designated institutions US10.0billion
Equity Fund Straight equity or non reimbursable grants US0.5billion IFC US300 million US1.5billion
Equity Fund Straight equity or non reimbursable grants US0.5billion Governments, IFIs, commercial investors US1.5billion

• Investment objectives Stabilize viable existing
  infrastructure projects which are facing
  temporary liquidity problems, and enable some
  continuation of new project development in
  private infrastructure
• Debt Trust passive vehicle to provide loans for
  existing and new infrastructure projects. Senior
  secured loans on a club matching basis. loan
  terms will be those of originating IFI loan
  except pricing. Projects must meet eligibility
  criteria of originating IFI.
• Equity Fund global infrastructure private
  equity fund to invest in viable projects facing
  distress

Confidential Information Purpose Only
26
Agenda

1. Overall Strategy
2. Advisory Services Financial Crisis Response
3. Global Trade Liquidity Program and Trade Finance
   Initiatives
4. Capitalization Fund (BCF)
5. Microfinance Enhancement Facility (MEF)
6. Infrastructure Crisis Facility (ICF)
7. Global Food Fund
8. IFIs Joint Action Plan in Central and Eastern
   Europe
9. Other Projects
10. Co- Investments Opportunities

Confidential Information Purpose Only
26
27
Global Food Fund Opportunity

• The recent food and financial crisis have caused
  significant financial distress in the
  agribusiness industry with rippling effects to
  food supply chains across the globe. Global food
  crisis threatens social and political stability
  and years of improvements in poverty reduction
  and nutrition.
• Create a Global Food Fund
• Crisis response with short-term debt.
• Long-term impact with equity.
• Catalyze investments in Agribusiness.
• Increase liquidity in Agribusiness value chain to
  meet seasonal working capital needs.
• Increase global supply of agriculture commodities
  and food.
• Develop necessary global, regional ad local
  agriculture infrastructure.
• Play a pro-active role in responding to the food
  crisis.

Confidential Information Purpose Only
27
28
IFC Global Food Fund Investment Approach

• Debt
• Self liquidating debt fund for short-term working
  capital, trade and export financing transactions
  with a tenor of less than 1 year.
• Facility will address shortage of liquidity faced
  by agribusiness players whose business is being
  impacted in the short term.
• Equity in agribusiness production, processing and
  farm land investments

Confidential Information Purpose Only
28
29
Agenda

1. Overall Strategy
2. Advisory Services Financial Crisis Response
3. Global Trade Liquidity Program and Trade Finance
   Initiatives
4. Bank Capitalization Fund (BCF)
5. Microfinance Enhancement Facility (MEF)
6. Infrastructure Crisis Facility (ICF)
7. Global Food Fund
8. Other Projects
9. Regional Action Plans
10. Other Projects
11. Co- Investments Opportunities

Confidential Information Purpose Only
29
30
Regional Action Plans
Confidential Information Purpose Only
31
IFIs Joint Action Plan in Central and Eastern
Europe Investment Approach

• As part of the Joint IFI Action Plan
• IFIs would act within their own mandates and
  procedures, and according to their respective
  product strengths, in a flexible way.
• Subject to each IFIs internal approval
  processes, IFIs may commit up to 24.5 billion
  over the next two years in support of the JIBSI.

Proposed IFI contributions coordinated through
the Joint IFI Action Plan
Confidential Information Purpose Only
32
Agenda

1. Overall Strategy
2. Advisory Services Financial Crisis Response
3. Global Trade Liquidity Program and Trade Finance
   Initiatives
4. Bank Capitalization Fund (BCF)
5. Microfinance Enhancement Facility (MEF)
6. Infrastructure Crisis Facility (ICF)
7. Global Food Fund
8. Other Projects
9. IFIs Joint Action Plan in Central and Eastern
   Europe
10. Co- Investments Opportunities

Confidential Information Purpose Only
32
33
Other Projects

• Distressed Asset Recovery Program (DARP)
• To create private sector program for addressing
  financial sector and systemic clean-up of banking
  systems resulting from increased distressed
  assets given financial crisis.
• As an initial step, an investment program of
  about US50 million for IFC account to expand
  servicer / platforms network and at a later
  stage, a Distressed Asset Investment Facility of
  potentially up to 500 million for IFCs account
  to create a bigger facility through mobilization.
  
• SME Initiatives
• Expand Private Equity Funds directed to SMEs -
  Expand investment in SME-targeted funds during
  FY10-12. The size of the program will be subject
  to capital availability
• Expand IFCs Small Direct Investment Initiative
  in real sector with focus on IDA countries
• Continue implementation of IFC SME Ventures Fund
• Closer alignment between Advisory Services
  Investment

Confidential Information Purpose Only