The Hindu Business Line : IFC keen on raising funds locally for lending to domestic projects

Chennai, Nov. 15 Mr Lars Thunnell has been criss-crossing countries in his role as the Chief Executive of the International Finance Corporation (IFC), the private sector funding arm of the World Bank. He was in Chennai as part of his India tour last week.

The last year has been a particularly challenging year for him as the global economic crisis began to unfold. His background and experience in handling other similar problems was to prove very useful. He had earlier played a key role as head of an asset management company set up by the Swedish Government to resolve its banking crisis in the 1990s. He said, “I set up that ‘bad bank’ and got the money back for taxpayers quicker than expected. So I knew a little about the problems that were there and were likely to happen.”

He spoke to Business Line briefly, taking a few minutes off from a packed schedule. Excerpts:

There has been talk of IFC raising money in India. What are your plans?

We like the idea of raising funds locally because it helps our clients develop new markets. We just announced a bond issuance in Central Africa and did one in Dubai.

Local currency funding will help because we don’t want to lend to the small entrepreneur in domestic projects in dollars. That’s because we think they shouldn’t take the foreign exchange risk. The more assets we can get in local currency, whether in accessing capital markets or swaps, go to help our customers.

There has been a problem of raising long-term funds in India. Does IFC have any plans to address this issue? For instance, would you like to participate in take-out financing?

We can only help to get things going, play a catalytic role and get the government to experiment a bit. India has a lot of good institutions. We would be very happy to participate in a dialogue with the government. We have already been part of the mortgage industry development process as well as infrastructure and private-public partnerships, where we are working closely with the government. But I think this can be solved by the private market and government themselves.

Having said that, it is important to have a good and balanced PPP model — that gives the tax payer and the public sector a good return. If we can do that in a good way, you can certainly attract long-term capital.

Would IFC look at extending recapitalisation loans for private sector banks (on the lines of what public sector banks are getting from the World Bank)?

I haven’t studied the banks here too closely. But we have worked with capitalisation of banks in many countries. Some recent reports say that India will soon move to 7 per cent growth and then to 9 per cent.

The government is looking ahead and trying to create the right weaponry for state banks to prepare themselves.

The regulator is of the view that market may be able to support the growth, by the time the recovery happens. If that is indeed the case, then the need for IFC resources would be modest. The market can do more and do much bigger volumes. However, if that is not enough, for sure, IFC will be available to help. We have already helped some of the Indian banks with tier-II capital, when they wanted to strengthen their balance-sheets.

What has been the impact of the global crisis on IFC? Has your asset quality suffered?

We were hit significantly by reduction in equity portfolio — especially unrealised gains. But we came through the fiscal year (ending June), making money, which we are proud of.

We saw the crisis a year ago and we did a number of things. Our first priority was to bring liquidity back into the system especially on trade finance. We saw that drying away. So we started a trade finance programme and trebled our volumes in that. We networked with banks in emerging markets as well as those in the US and Europe to guarantee letters of credit. Then we worked with a number of governments to provide liquidity which we pumped into the system. If you look at the G-20 programme for trade finance of $250 billion over 3 years, we are contributing a significant sum in that.

Secondly, for the microfinance industry, we felt that their difficulties were not an asset problem but a liability problem. A lot of their activity was being financed by cross border banks that were being supported by their governments in Europe and had to pullback. We joined hands with the Dutch and Swedish governments to start a $500- million fund that was distributed to a number of micro finance institutions (MFIs) to refinance their commercial bank debt.

Thirdly, we contributed about $1 billion for a $3-billion fund for capitalisation of banks in small and poor countries. Now, we have also launched a facility that is looking at distressed assets because there are a lot of non-performing loans in different banks in various countries. If we can get that out of those balance sheets it is good, because then they can focus on extending credit which is their business.

And in the real sector, we are working with a number of governments. In the infrastructure sector, we saw a lot of commercial banks pulling out of long-term projects that were viable. We have, therefore, created a facility which is close to $4 billion. We could also use this in India. We have been in discussions in India about this.

Related Stories:
IFC may invest Rs 450 cr in Sagar-Vicat cement plant
Entrepreneurs should move to formal sector: IFC

More Stories on : Interview | Financial Institutions

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