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Overview of The IFC Earth Fund Platform GEF Assembly, May 2010.

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Presentation on theme: "Overview of The IFC Earth Fund Platform GEF Assembly, May 2010."— Presentation transcript:

1 Overview of The IFC Earth Fund Platform GEF Assembly, May 2010

2 2 The IFC Earth Fund Platform GEF Earth Fund IFC IFC Earth Fund Platform US$40M US$30M US$10M “Leverage GEF and other funding for the creative and innovative use of risk mitigation instruments and technical assistance to transform markets through (i) the testing, development and establishment of new technologies, financial products/structures and business models, and (ii) the scale up of previously supported tested initiatives” Objective Supporting Programmatic and Individual Market Transformation initiatives: Removing barriers that impede wider private sector participation in a particular context, preventing faster, more widespread or more long-term sustainable adoption of technology, financial products, business models that address Climate Change and/or conserve Biodiversity. Investments and Advisory Services How? In order to address conflicts of interest and ensure donor funds are invested with the same care as if they were IFC’s: IFC has a dedicated team that reviews project eligibility, structures and supervises Earth Fund projects A separate Investment Review Committee approves the use of the Earth Fund funding; a representative of the GEF Secretariat participates in the meetings. Governance Eligible Investment & Advisory Services Projects

3 3 Market Transformation: Testing and Scaling up TestingScaling-up Innovative Financial Structures / Business Models -Tools to incentivize listed companies in emerging markets to disclose and improve their carbon efficiency (e.g. Carbon Efficiency Index) - Information tools for institutional investors invest in Climate Change PE Funds - Advisory Services to develop light rail PPP -Incentives for FIs to lend to EE & RE: - Performance bonus - Risk sharing facility / first loss - Extended tenors - Concessional pricing - Advisory Services to FIs, technical service providers and end users to promote EE investments Technology Commercialization - Cleantech venture capital Pilot- Subordinated & deferrable debt for RE (Solar) - Support to companies to undertake CP audits

4 4 IFC Earth Fund Projects Overview # Projects Reviewed IS22 AS29 Total49 # Projects approved IS5151 AS5 Total10 Amounts Approved(US$ M) IS26.0 1 AS5.8 Total33.8 2 Approved Projects Leverage (US$ M)202.2 Approved Projects Leverage Ratio - GEF7.3x 3 # Projects rejected by IRC1 1 One US$2 million project as been dropped after approval. Another US$5 million project might also be dropped. It does not include one US$5 million investment project that obtained conditional approval and is currently on-hold. 2 US$28.5 from GEF and US$5.3 from IFC FMTAAS contribution to the IFC EF Platform 3 US$207.5 million (3 rd parties co-financing + IFC FMTAAS)/ US$28.5 million of GEF financing

5 5 IFC Earth Fund Projects Overview (cont.) Project – General Description InstrumentUS$ MCountryMarket Barriers Targeted GEF Leverage Ratio IS EE Lending Loan + Performance Bonus 1.0Vietnam - FIs’ high perceived risks -Lack of access to long term liquidity by FIs -High upfront costs to set up new business 24.0x Cleantech investment 1 Equity2.0China -High technology costs -Lack of financing for small cleantech company 6.0x SE FundDebt Fund5.0 Sub-Saharan Africa - Lack of financing due to investors’ high perceived risks to lend to SE projects in Africa 9.0x Cleantech Pilot FundEquity5.0 3 Global - Lack of equity financing due investors’ high perceived risks to invest in venture cleantech 3.0x Solar PlantSubordinated Loan13.0Bulgaria - Regulatory risk limits size of senior debt and sponsor’s return 7.4x AS CP FacilityGrant5.0Global - Companies’ lack of capacity and information - High upfront costs - Lack of financing due to FIs’ lack of expertise 73x (1.2x) 4 EE ASGrant0.2Indonesia - FIs’, companies’ and service providers’ lack of capacity and information 4.2x Carbon IndexGrant0.3Global - Lack of information about listed companies carbon emissions 3.6x RECIPPE – Info tool for institutional investors Grant0.2Global - Institutional investors’ lack of information about risk-return of climate change sectors - High upfront costs to set up information tool 4.4x Amman LRSGrant0.4Jordan Lack of government capacity to develop and execute light rail PPP 3.0x 5 1 Project has been dropped after approved due to difficulties with other shareholders. 3 US$15 million project request from EF. Initial commitment of US$5 million due to funding constraints. Next US$10 million to be committed in two subsequent tranches if funding available 4 1.2x is ratio of third parties co-financing (US$6 million) to Earth Fund funding (S$5 million). However GEF is funding US$0.15K and IFC FMTAAS is funding US$4.8 million; therefore the leverage ratio to GEF is 73x 5 100% funded by IFC FMTAAS. Ratio is IFC FMTAAS contribution to other co-financing

6 6 Project Example: Promoting EE lending in Vietnam Market Barriers No lending to EE projects due to FIs’ high perceived risk as a result of track record and technical expertise FIs’ limited access to long term funding Earth Fund Intervention US$1 million loan with performance bonus (PB) to leading FI, complementing a US$24 million IFC loan to be on-lent to EE projects PB equivalent to 2% of the FI’s portfolio to encourage it to build a US$50 portfolio The FI will only receive the PB if it builds a minimum portfolio of US$25M and 50% is with SMEs The FI is also receiving AS from IFC This is the first of 3-4 interventions in the country To transform the market Track record established for the viability of commercial EE financing to SMEs Increased capacity of FIs to lend to EE projects Demonstration effect to encourage replication by other local FIs Dec 09: IFC Approves US$24M loan Feb 10: EF investment approved May 10: Legal Agreement with client signed The Process: Negotiation and structuring of the investment Negotiation of legal documentation

7 7 Lessons Learned Delegated authority significantly reduces approval time (less than 2 months between IFC’s and EF’s approval) The independent Investment Review Committee has played a key role to guarantee the best use of donor funds, providing advise on project design and financial structures, and protecting the donor’s interests vis-à-vis other financiers, including IFC Approval Process Need for a clear criteria for eligible activities in projects where IFC works with financial intermediaries Generating a strong pipeline for investments took longer than for advisory services; however, in the last months we have experienced a big ramp-up in the demand from investment departments Project origination Need to engage with IFC teams and clients early in the negotiations to ensure donor funds adequately help address market barriers and are properly structured Subsidy should be defined on a project by project basis to address specific market barriers and ensure “minimum concessionality” Structuring of donor funds


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