IFC and AIIB Sign ISDA Master Agreement to Expand Infrastructure Investments in Asia

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The FINANCIAL — IFC, a member of the World Bank Group, and the Asian Infrastructure Investment Bank (AIIB) have signed an International Swaps and Derivatives Association (ISDA) Master Agreement to enhance their capacity to make investments in emerging-markets projects, especially in Asia’s infrastructure sector.

It is the first financial collaboration agreement between the two development finance institutions, demonstrating innovative ways to scale up development finance through capital market solutions, according to IFC.

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. 

Andrew Cross, IFC Deputy Treasurer for Asia said: “Modern infrastructure is essential for lasting growth and prosperity. Yet the financing gap in this sector is huge, totaling trillions of dollars a year in emerging markets alone. Our partnership with AIIB will enable us to offer more efficient infrastructure financing through the broader use of capital markets tools.” 

Earlier this year, IFC launched an innovative program, known as MCPP Infrastructure, which will raise $5 billion from global institutional investors such as insurance companies to modernize 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 Søren Elbech, Treasurer, AIIB. “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.  It therefore makes a lot of sense for us to create financing solutions that significantly reduce our clients’ risk of losses from such currency risks.” 

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Since opening its doors on Jan. 16, 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, prioritizing cross-border infrastructure projects, and devising innovative solutions to catalyze private capital investments. 

In many developing countries, basic infrastructure is failing, insufficient or non-existent. More than 1 billion people lack access to electricity. About 650 million people lack access to a clean source of drinking water, and more than 2 billion live without sewage infrastructure. Some 80% of wastewater globally is discharged without any treatment, threatening ecosystems and human health. IFC invested more than $4 billion in power, transport and municipal infrastructure projects in FY16, including funds mobilized from third parties. 

 

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