IFC, a member of the World Bank Group, and the Asian Infrastructure Investment Bank (AIIB) have signed an agreement to jointly make investments in emerging market projects, especially in Asia’s infrastructure sector.
The International Swaps and Derivatives Association (ISDA) Master Agreement between IFC and AIIB, of which Pakistan is among the founding members, is the first financial collaboration agreement between the two development finance institutions, demonstrating innovative ways to scale up development finance through capital market solutions.
The China-based Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank that seeks to invest in high quality projects that offer infrastructure solutions to improve the social and economic development of its member countries. Since its formal launch in January 2016, AIIB has approved loans of $1.73 billion to support nine infrastructure projects in seven countries.
In 2017, the bank is focused on improving connectivity throughout Asia by supporting member countries to meet their environmental and development goals, prioritising cross-border infrastructure projects, and devising innovative solutions to catalyse private capital investments.
Under the agreement, AIIB and IFC will be able to hedge with each other the interest rate and currency risks associated with its investments, expanding their overall lending capacity.
IFC has already entered in such agreements with the African Development Bank, the Asian Development Bank and the European Bank for Reconstruction and Development, according to an IFC statement.
“Our partnership with AIIB will enable us to offer more efficient infrastructure financing through the broader use of capital markets tools,” IFC Deputy Treasurer for Asia Andrew Cross, said. “Modern infrastructure is essential for lasting growth and prosperity. Yet the financing gap in this sector is huge, totalling trillions of dollars a year in emerging markets alone.”
Earlier this year, IFC launched an innovative programme, known as MCPP Infrastructure, which will raise $5 billion from global institutional investors such as insurance companies to modernise infrastructure in emerging markets over the next five years.
“This agreement facilitates AIIB’s ability to support our clients’ projects and help promote local currency bond issuance,” said AIIB Treasurer S’ren Elbech. “Multilateral financial institutions, like AIIB and IFC, have a much larger risk bearing capacity, compared with private sector companies in the countries where we lend.”
