Capital Markets and Resource Mobilization 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

Changes in the allocation of IFI resources over the recent years 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 Strengthen the focus on Frontier Markets, in particular Africa, with emphasis on technical assistance, investment climate and SMEs Build Long-term partnerships with emerging global players (South-South) capitalizing on the strengths of clients in China, India, Brazil, South Africa, etc. Help expand the sustainability agenda Address constraints to private sector growth in infrastructure, health and education Continue to emphasize local financial market development

IFC Role in Mobilization and capital Markets 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

How IFC does Mobilization 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

IFC Mobilization: B Loan Program 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

Extra slide in case of questions. B Loan Structure Loan Agreement Borrower A + B Loans Participation Agreements 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 B Loan Participants Extra slide in case of questions.

IFC’s Local Currency Financing Instruments Using Derivatives 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 IFC able to provide swaps in 8 African countries

IFC’s Local Currency Loans and Swaps 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

Note to presenter: list the products you will discuss IFC’s Existing Portfolio and Pipeline of Local Currency Transactions 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 Note to presenter: list the products you will discuss

Structured Finance and Guarantees 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.

Structured Finance at IFC 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

Capital Market Development 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

IFC Financial Markets Strategy for the Future 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