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Financial intermediaries: What’s the issue? Peter Chowla

Financial intermediaries: What’s the issue? Peter Chowla. 4 June 2013. Overview. Financial Intermediaries what are they? FI lending – how it works Concerns Justifications for FI use CAO report on FIs Options for challenging FIs. What are they?.

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Financial intermediaries: What’s the issue? Peter Chowla

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  1. Financial intermediaries:What’s the issue?Peter Chowla 4 June 2013

  2. Overview • Financial Intermediaries what are they? • FI lending – how it works • Concerns • Justifications for FI use • CAO report on FIs • Options for challenging FIs

  3. What are they? • Financial intermediaries are third-party financial entities such as banks, insurance companies, leasing companies, microfinance institutions, and private equity funds.

  4. IFC • Financial Intermediary • private equity fund • investment bank • commercial and retail bank • non-banking microfinance institution • other (e.g. credit guarantee company, real estate fund) • Sub-project • Micro-enterprises • Small, medium and large companies • Specific projects • Individual household • equity investments • guarantees • loans • trade finance • risk management products • syndications • equity investments • lending to businesses, including microfinance • project finance (e.g. infrastructure projects) • trade finance • housing finance • leasing • consumer finance FI lending: how it works

  5. Financial Intermediary Stats - IFC • 47% IFC operations are through financial intermediaries in FY2011 • Almost $4 billion committed in FY2012 categorised as FI risk category, 25% of FY2012 commitments (but excludes trade finance) • But $10 billion in funds, trade finance & financial markets categories – more than 64% of FY2012 commitments • Overall 45% of the portfolio in funds, trade finance and financial markets

  6. IFC FI stats – by destination

  7. IFC FI stats – by sector

  8. IFC FI stats – by country

  9. Concerns • FIs allow bypassing of strict performance standards (social, environmental) as compliance is self-certified by IFC clients • Who is leveraging whom? • Problems with transparency and accountability • No clear measurement or prioritisation of development impacts • Impact of these interventions on the financial sector of developing countries • Being used as a way to

  10. Justifications for FI use • Small-scale projects/loans are too time intensive for IFC staff to get involved in • More efficient to use the private sector • FIs know the market/clients better • Want to build the capacity of local financial institutions – financial inclusion, market development, financial deepening

  11. CAO report on FIs • Compliance Advisor/Ombudsman (CAO) finished an evaluation of IFC FI projects last year • Evaluation report was critical – saying that the IFC “doesn’t know” impact or risks • IFC likely to use this as opportunity to reach out to NGOs in the next months

  12. Options for challenging FIs • General strategy – point to corporate welfare and lack of development impact • Find bad projects (old strategy) that are funded by FI and make the link back to IFC (harder than before) • Contest the financial sector model promoted by the IFC – involves challenging financialisation • Work within the system to promote better development impact assessment and ESG monitoring

  13. Bretton Woods Projecthttp://www.brettonwoodsproject.orgTwitter: @brettonwoodspr Peter Chowla pchowla@brettonwoodsproject.org

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