International Finance Corporation branches out
Rachel Kyte is Vice-President of Business Advisory Services for the International Finance Corporation (IFC), the arm of the World Bank (WB) that provides finance and advice for private investment in developing countries. She joined the Washington-based organisation nine years ago as an ombudsman, investigating complaints about projects, moving on to become Director of the Environment Department before her current posting.
Rachel Kyte.
© IFC
In the following interview with The Courier in Brussels, she tells us that the IFC is seeking new partnerships with bilateral and multilateral partners because there is now little money sitting around in public coffers. Rachel Kyte says that these are “interesting times for international financial architecture” with a need for an even sharper focus on the poor the least resilient in the crisis and for more innovative instruments.
In the wake of the crisis in October 2008, a lack of finance for infrastructure quickly emerged and at the end of 2008, the IFC also calculated a US$1.8bn shortfall of financing for the microfinance industry. Kyte says that since the big trade banks had repatriated most of their capital back to Europe instead of putting it into credit services in emerging markets, the IFC’s Board immediately tripled its trade financing to $US3bn. A microfinance facility was also created with the Germans, with a first tranche of a $US500M which helped extend finance to 30 highly successful commercially-based micro-finance institutions around the world, a special initiative the IFC now wants to repeat.
What was the IFC’s remit following the Pittsburgh G20 meeting?
In its financial inclusion paragraphs in Pittsburgh, the G20 expressly asked us to help. The question was, how do you extend financial inclusion even at a time of a retreating global economy? How do you make sure that the poor do not suffer more? We are nearly five years away from the Millennium Development Goals (MDGs) and are a long way from achieving them, so how do you keep fighting poverty at a time when there are far fewer resources to go around? One issue is how to increase the amount of smart regulation that allows finance to be accessible to the poor. This is a discussion about how to extend access both by making smart regulation (such as a collateral register). Secondly, if more money were put on the table, it’s a matter of helping Small and Medium-sized Enterprises (SMEs) best channel this through supply chains by assisting big companies in extending their backward linkages to create more jobs in SMEs and also looking specifically at the needs of women who are owners of SMEs, but have problems getting access to markets and credit.
Have you brought in any new instruments in the wake of the crisis?
There are three big innovations. One has been to create more funds for our own account; setting up equity accounts with more people on board, for example the equity structure fund with Germany’s participation. All co-operation partners now sit down, agree on the problem and co-create.
The second is the global trade liquidity pool; it is not a new instrument in itself but the number of partners and the ambition are very new. Thirdly, we have created an asset management company. This is not on our own account. It is a wholly-owned subsidiary. This allows us to leverage sovereign funds, public pension funds and privately-managed pension funds to invest alongside us. We provide the flow and these funds will be able to take 50 per cent of equity. It is another way of bringing more capital into emerging markets in a responsible way at a time when it is just not flowing on its own.
We understand there is at least $US5 trillion worth of public pension funds’ assets under management in Europe that have some kind of requirement of sustainability, as well as pension funds that need to grow in order that we can all have our pensions. They have to produce a return to the beneficiary and they have to be green which means that over time they need to be invested more in emerging markets and in sustainable companies.
Can you tell us more about the IFC’s initiatives to promote women’s business activities?
We are helping banks invest in them as entrepreneurs because it’s smart business. We are also about to launch what I call a new ‘public good’ – that actually helps people understand how to ensure that when they reform the regulatory environment for SMEs, it is done in such a way that women in business benefit as well. We have traditionally been very gender blind in regulatory reform for SMEs. For example, you can set up a collateral register but in countries where women are prevented from raising collateral, how do you create such a register that takes into account the ability of a woman to collateralise movable assets such as jewellery, or a fixed asset that might mean a change in the law around ownership of land? If you go in with your eyes wide open, you can have much more effective regulation. Over 60 per cent of SME owners in Africa are women. We will be launching this work over the next few weeks. I am hoping it will be taken up by everybody who is in the SME business.
Do you forecast a second global crisis?
We see a long, hard road out of this with complete restructuring of certain supply chains in some industries that had over-capacity – including downsizing as a result of recession, for example, in the apparel industry. We are concerned about how to stimulate credit in emerging markets and how to enable good firms to access credit. It is not going to be easy. The Organisation of Economic Cooperation and Development (OECD) is not the only source of investment. We have just been to India and were all struck with the opportunities for Indian investment in Africa. You are going to see a lot more South-South investment.
GIIF: an IFC/EC innovation
The Global Index Insurance Facility (GIIF) is a new joint initiative between the IFC, European Commission (EC) and the Dutch Government. It provides funds to insure against certain catastrophic events, depending on their severity. For example, insurance will be paid out in the event of a wind storm of a certain category, or an earthquake registering a certain magnitude on the Richter scale. Jean Philippe Prosper, IFC Director for Eastern and Southern Africa, says, “The Global Index Insurance Facility will help protect farmers and vulnerable communities against natural disasters that can wipe out their livelihoods and trap them in poverty. IFC is committed to helping extend financial products and services to places where the private sector is at the early stages of development, creating more opportunities for people that need them the most”. The EC has put €24.5M into GIIFs trust fund which is also supported by the Netherlands.
Find out more: www.ifc.org
