Multilateral Development Finance Institutions
Multilateral Development Finance Institutions
Multilateral Development Finance Institutions support private participation in infrastructure investments through products such as equity participation, long-term loans, guarantees and technical assistance.
Organisations relevant to Southeast Asia include the Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), Islamic Development Bank (IDB), World Bank group, ASEAN Infrastructure Fund and the Credit Guarantee and Investment Facility (CGIF).
Asian Development Bank (ADB)
ADB’s objective is to support economic development in Asia and the Pacific by promoting investment through the provision of loans, grants, equity participation, guarantees and technical assistance. Its financing is available for private sector projects that have a clear development impact. It is able to offer political risk guarantees for loans from commercial banks, shareholders, guaranteed loans, bonds, financial leases, letters of credit, promissory notes and bills of exchange. Though ADB’s participation is usually limited, it leverages financing from commercial sources.
Under ADB’s Strategy 2020, both non-sovereign and sovereign financing are increasingly sought to support PPP projects:
- Sovereign financing is eligible for governments and state-owned enterprises in developing member countries (DMCs)
- Non-sovereign backed financing is available for private sector infrastructure projects. These projects need to be located in a DMC and should either be majority-owned by private entities or, if more than 50% of the voting capital is held by public entities, local government or state-owned entities.
ADB implements projects in eight of the ten ASEAN Member States: Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Thailand and Viet Nam. At a regional level, ADB collaborates with and supports regional organizations and funds dedicated to facilitating infrastructure development in the ASEAN region. These organizations include:
- Asian Development Fund (ADF)
The fund operates under ADB’s Strategy 2020 for an Asia-Pacific free of poverty, which it aims to achieve through: inclusive economic growth, environmentally sustainable growth and regional cooperation and integration. ADF provides concessional lending and grants for infrastructure investments in ADB’s poorest countries aiming to reduce the development gaps. Financing for cross-border infrastructure specifically targets projects that aim to strengthen regional integration and connectivity. Investments are frequently complemented by measures to facilitate trade, improve the investment climate, access to finance and skills.
- ASEAN Infrastructure Fund (AIF)
The fund seeks to support the implementation of the Master Plan on ASEAN Connectivity (MPAC), which calls for a better-connected ASEAN region that brings people, goods, services and capital closer together, by providing loans to projects that promote infrastructure development. The planned total lending commitment amounts to USD 4 billion until 2020. Through ADB co-financing of 70% and private funds, the AIF seeks to leverage infrastructure financing of USD 13 billion. Being operational since 2013, the fund has so far approved two projects in Indonesia and one in Viet Nam. Projects are selected based on sound economic and financial viability, positive impact on social development and poverty reduction, promotion of regional cooperation and integration and enhancement of private sector participation and/or public-private partnerships (PPPs).
- Credit Guarantee and Investment Facility (CGIF)
Established in 2010, CGIF seeks to promote financial stability and boost long-term investments in the ASEAN+3 region via its mandate to develop local bond markets. It offers guarantees on local-currency-denominated bonds to facilitate companies’ access to local bonds with longer maturities. This reduces their dependency on short-term foreign currency borrowing and addresses currency and maturity mismatches. Increased local currency bond issuance will also promote financial stability in the region and will aid the development of ASEAN’s bond markets. CGIF has received capital contributions of USD 700 million.
Asian Infrastructure Investment Bank (AIIB)
AIIB aims to promote inter-connectivity and economic integration in Asia, through supporting the development of infrastructure and other productive sectors, including energy and power, transportation and telecommunications, rural infrastructure and agriculture development, water supply and sanitation, environmental protection, urban development and logistics. The Prospective Founding Members (PFMs) of AIIB include all ten ASEAN Member States.
Islamic Development Bank (IDB)
IDB aims to foster the economic and social development of its member countries, which includes three ASEAN countries (Brunei Darussalam, Indonesia and Malaysia) with a regional office located in Kuala Lumpur, Malaysia. The Bank supports infrastructure development through Sharia-compliant loans, grants and equity participation. The IDB Infrastructure Fund (IIF) provides equity and equity-related investments in infrastructure projects and industries and promotes the use of Islamic finance in these projects.
World Bank Group
The five institutions of the World Bank Group facilitating infrastructure development, by providing financing, guarantees and technical assistance, are:
- The Multilateral Investment Guarantee Agency (MIGA) which promotes investment in developing countries by providing political risk insurance guarantees to private sector investors and lenders
- The International Bank for Reconstruction and Development (IBRD) which provides loans to middle-income and credit-worthy low-income country governments
- The International Development Association (IDA) which provides interest-free loans and grants to the governments of the poorest countries
- The International Centre for Settlement of Investment Disputes (ICSID) which provides international facilities for conciliation and arbitration of investment disputes
- The International Finance Corporation (IFC) which supports private sector investments in over 100 developing countries, in order to create jobs, generate tax revenues, improve corporate governance and environmental performance, and contribute to local communities. Its products include:
- Financing and advisory services, with the aim to improving basic services such as transport, mining, education, electricity, health, waste, water and sanitation. Services include equity participation and loans complemented by various syndication schemes. IFC’s syndications enable commercial banks, development finance institutions (DFIs) and institutional investors to co-invest in IFC’s projects, focusing on the following sectors: infrastructure and natural resources, manufacturing, agriculture and services, financial markets.
- Syndication schemes, which include B Loans, parallel loans and managed co-lending portfolio programmes.The B Loan Programme raises additional private sector financing from commercial banks. The Programme enables financial institutions to lend to IFC-financed projects. As IFC remains the lender of record, financial institutions benefit from IFC’s Preferred Creditor Status and from a potential exemption from the mandatory country-risk provisioning requirements.
Transaction advisory services target national and municipal governments to support the implementation of PPP projects.
- Structured finance products, including the Partial Credit Guarantees, to support cost-effective forms of financing that would not otherwise be readily available to clients. More information on IFC’s guarantees can be found here.
In order to facilitate PPP projects, the World Bank group has also established:
- The Public-Private Partnerships in Infrastructure Resource Center for Contracts, Laws and Regulations (PPPIRC) which provides an array of guidelines and sample legal materials to assist in the planning, design and legal structuring of infrastructure projects
- The Private Participation in Infrastructure (PPI) Project Database which includes data on over 6,000 infrastructure projects in the developing world, covering projects in the energy, telecommunications, transport, and water and sewerage sectors
- The Public-Private Infrastructure Advisory Facility (PPIAF), a multi-donor trust fund that provides technical assistance to governments in developing countries to support an enabling environment for private infrastructure investment
- The Body of Knowledge on Infrastructure Regulation (BoKIR) which provides information and good practice examples on infrastructure policy and regulation