The International Finance Corporation is advancing with new tools internally and externally to boost its development effectiveness, as the organisation reshapes and reorganizes under chief executive Philippe Le Houérou.
The lender, which has $92bn of assets, is expected to launch before year-end the first currency hedge to allow it to lend in frontier currencies. At the same time, it is restructuring to better co-ordinate efforts with the World Bank and putting greater priority on development impact when taking investment decision, Le Houérou told GlobalMarkets in an exclusive interview.
The new FX hedge programme will allow the IFC to provide local currency financing in countries lacking a liquid swap market. The International Development Association, which recently received a record round of commitments, will provide the currency cover to the IFC.
“In many of the middle-income countries we don’t need this. We can do a local bond, we can hedge ourselves. But where you go to a country where there’s zero local market, how do you do that?” says Le Houérou. “Paradoxically in the poorest country where you don’t have the capital market, that’s where there is the biggest risk. We’re trying to remedy market failures through this.”
Le Houérou is also reorganising the corporation’s internal structure to allow it to work with the World Bank more systematically than in the past. In particular, he is appointing a suite of region-specific vice presidents, who he hopes will co-ordinate more closely with the public sector side of the group. At the group level, private sector solutions should be put forward first, with blended financing a second option and concessional loans a last resort, he says.
Additionally, the IFC is introducing a scoring system to rate the likely development impact of any project before it is approved, to complement the traditional financial analysis. A four-point grading system — rating projects from “marginal” to “very high” development impact — was brought in recently, and the IFC is working on further evolving that to a numerical scoring system.
The changes come as Le Houérou, who took over as chief executive 18 months ago after a long career at the World Bank, refocuses the IFC on its original mandate of growing assistance in the poorest countries.
“The whole history since 1956 when we were created was to go more and more into difficult geographies,” he says. “That means more and more risky. So how do you attract investment into risky places?...My idea was to start to be more proactive in creating markets. It means working more upstream, where you create your own opportunities.”