Martin Spicer (International Finance Corporation): “We support commercially viable projects in tough environments”

Leaders League. The World Bank Group has two goals to achieve by 2030; end extreme poverty and promote shared prosperity in every country. How will blended finance help achieve these goals?

Martin Spicer. The broader role of the International Finance Corporation (IFC) is to achieve sustainable development and encourage investment in emerging markets. We work with clients and private companies to finance private sector investments on a commercial and market basis. We support commercially viable projects in tough environments that traditional investors may neglect. We believe the private sector is a critical part of countries’ economic development.

When we talk about blended finance at IFC, we take our investment approach of supporting commercially viable companies and we blend that financing with concessional funds from donors who are willing to invest their money alongside ours. Between 2010 and 2017, we supplied about $705 million in concessional donor funds to 119 projects in over 50 countries, initially focusing on climate, agribusiness and food security sectors. This funding unlocked an additional $2.4 billion from IFC and mobilized around $4.8 billion from other private sources. We’ve seen blended finance is effective in encouraging investment in more challenging parts of the world and it is helping us build cleaner energy infrastructure, boost agricultural productivity, expand credit opportunities for women, and more.

With so many countries in need of concessional funding, how do you decide where to direct these funds?

When using our own commercial money, we take a traditional risk-reward approach when selecting investments. When using concessional money, we need to take a more disciplined and targeted approach. These funds should only be used when needed. They are reserved for more challenging markets, such as low-income or fragile and conflict-affected markets, which are important for our donors. We also adhere to Enhanced Blended Finance Principles to guide our decision making. The first principle ensures that concessional money adds extra value to a project, simply by making it happen or by increasing its impact. The second is using the minimum concession necessary to get the desired result and secure private support. The third is that concessional funds should be used in a temporary way, to jump-start an investment or sector- not provide long-term subsidies. The fourth principle is that we support rather than distort markets, as subsidies can impact these. Finally, we need to ensure we promote high standards, in line with the IFC’s investment approach and high standards of integrity.

Could you tell me about some blended finance projects you have undertaken at IFC?

In Côte d’Ivoire, we partnered with cocoa giant Cargill to provide funding for affordable loans so that their farmers can purchase trucks, helping to cut their costs and minimize product loss. Cargill works with over 8,000 farmers in 100 different partner co-ops. Their farmers go through a co-op academy and graduates can acquire new trucks through a special leasing deal, which is paid off as they deliver cocoa to Cargill.

We also had a project in Thailand to spur the country’s renewable energy sector. A decade ago, the risk of financing solar power was perceived to be high. Funding from one of our climate investment funds, alongside IFC’s own funds, enabled a first-mover company to build the country’s first solar power plants. Starting with just 12 megawatt capacity this has since risen to 300 megawatts, attracted more than $800 million in clean energy investments, and avoided 200,000 tons of CO2 emissions annually.

E.L