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Obtaining finance. Some ideas from the Municipal Fund. Needs growing everywhere. Decentralization to reduce pressure on central govt. budget Decentralization because local decision-making, implementation and maintenance are better Population growing (naturally and by migration)

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obtaining finance

Obtaining finance

Some ideas from the

Municipal Fund

needs growing everywhere
Needs growing everywhere
  • Decentralization to reduce pressure on central govt. budget
  • Decentralization because local decision-making, implementation and maintenance are better
  • Population growing (naturally and by migration)
  • Standards rising
sub sovereigns sources of finance
Sub-sovereigns’ sources of finance
  • Own cash generation
  • Taxes
  • Transfers from central governments
  • Commercial banks
  • Local capital markets (bonds)
  • Development banks, multilaterals, etc.
competition
Competition
  • Sub-sovereigns are competing for all but own-generated sources
  • Moreover you’re competing for long-term funds with the Central Treasury
  • Need to move early
  • Need to achieve quality
  • Need to maintain market track record
mexico
Mexico
  • All municipal financing had depended on securing lenders by intercepts on Federal transfers
  • Banks had limits, everyone competed for bank finance
  • Growing needs
  • Essential to develop new approaches
tmwc mexico

Tlalnepantla Project:

Latin America

Municipal Finance

Of the Year

Local Government

Bond of the Year

Municipality/OPDM

3

2) Trustee issues loan to

Municipality and water

company and transfers

net funds to water company.

2

3) Muni pledges proceeds from

water fees to pay the Trust’s loan

4

nd

2

order

Beneficiary of the

trust

4) Issue guarantee to

cover princ.and interest

1) The Trustee issues

certificates to investors.

5

1

CERTIFICATE HOLDERS

5) Investors buy certificates

Debt paid by water fees.

Secured by cash reserves and guarantee.

st

1

order

Beneficiary

Of the trust

TMWC Mexico

Trustee

what happened
What happened
  • Bond sold well – viewed as great success
  • Market noted the absence of Federal intercept
  • But no more municipal bonds issued in past year
  • Why? – the banks have dropped their security requirements for intercepts and become more competitive in price and maturities
  • Lesson – new approaches can influence all parts of the market
bank financing
Bank financing
  • Close relationship between borrower and lender
  • Easier to fit conditions to borrower’s needs
  • Disbursements and repayments can be phased with projects cash flows
  • Volumes constrained by regulation, bank prudential limits
  • Maturities must fit bank’s funding and strategy
  • Easier to negotiate (maybe)
bond financing 1
Bond financing 1
  • Long-term savings enable long-term investment
  • Bond financing very suitable for infrastructure investment
  • Potential volume of funding available is enormous
  • Introduces competition for the banks
  • Structured financings are quickly developed, driving prices down
  • Secondary markets develop to provide liquidity
bond financing 2
Bond financing 2
  • Experience has shown market is relatively stable financing source
  • There are minimum sizes
  • Drawdown and repayment schedules set by market
  • Terms may be less flexible
  • If problems arise, borrower must deal with many bond holders, not a few banks
  • Supplemental to existing financing
investors lenders look for
Investors/ lenders look for:
  • Good management in operations, budget, finance and project implementation
  • Transparency and accountability
  • Good decision-making
  • Clarity of relationship with central government
  • Reliable cash flows
  • Continuity
  • Focus on essential projects
sub sovereign borrowers offer
Sub-sovereign borrowers offer:
  • Productive, necessary, local, investment
  • Absence of market risk
  • Regular, predictable, earnings
  • Oversight by both central government and local citizens
  • Long-term users of finance
  • Stability
municipal fund
Municipal Fund
  • New products added to World Bank Group range
  • Commercial finance for sub-sovereigns without a sovereign guarantee
  • Currently experimental, but a high enthusiasm for Africa
  • Institution-building, loans, quasi-equity, guarantees
  • Bond enhancements and liquidity facilities
municipal fund website
Municipal Fund Website

Global Finance for Local Needs

Bringing global financing to local public institutions to improve lives and reduce poverty.

The Municipal Fund is a combined initiative of the World Bank and the International Finance Corporation. We provide needed capital investment to municipalities and other local public entities in the developing world without central government guarantees.

Learn more about our Program and our business opportunities.

Website:www.ifc.org/municipalfund

Email:municipalfund@ifc.org