Banking Agents, On the Frontlines of Financial Inclusion
Banking agents, or small shops contracted by banks to process client transactions, are laying the foundation for the digital transformation of the financial sector. They have also become a safer channel for clients to get cash during the pandemic.
How to attract more private capital to PPPs
As an engine of economic growth and poverty reduction, PPPs are on the rise in Latin America and the Caribbean (LAC). In the last decade, there were approximately 1,000 PPP infrastructure projects valued at $360 billion. Especially, in our current market of constrained fiscal budgets and deep social inequalities, PPPs have become more relevant than ever. Despite this historic uptick, many projects cannot mobilize sufficient private capital. PPPs crowd-in approximately one dollar of commercial finance for every dollar of public finance – a 1:1 ratio which has failed to close the infrastructure funding gap. On the supply side, institutional investors hold funds equivalent to 20 percent of the region’s GDP - a compelling figure when we seek an additional 2-2.5 percent of GDP to meet demand. Managing long-term assets like pensions and insurance is an ideal match for the long-term tenors of PPP projects. In addition, PPPs offer investors relatively predictable repayment schedules, promising financial returns and protection from inflation. In the past, private capital, namely from institutional investors, has been cautious. However the ability to mitigate certain risks is making projects more bankable and piquing investor interest. 1. Legal and regulatory risks Legal and regulatory risks span policies, regulations and institutions. Strengthening them to address market failures, incentivize risk-sharing and regulate consistently reassures investors. Countries are setting up government agencies and units with expertise to supervise PPPs. Advisory services to governments can further strengthen institutions, their regulators and supervisory mechanisms as well as long-term project programming. 2. Project preparation risk Capacity-building combined with the right incentives can mitigate project preparation risk. This can optimize project efficiency, predictability and investor-friendliness. Technical assistance can support project investment plans and share knowledge with public officials at PPP promotion agencies. Supporting investment planning can align PPP development with nationally- determined contributions. This fosters more climate-resilient, sustainable projects. Advisory also allows governments to determine optimal delivery models by conducting value for money assessments to ensure each asset brings value to government agencies, investors and end-users. 3. Foreign exchange risk Most PPPs, except for many in the energy sector, where they are often dollar-denominated, rely on local currency. For a PPP to succeed, avoiding foreign exchange risk is key. Governments are limited in the amount of dollars they can guarantee. Mobilizing local currency allows local borrowers to repay in the currency they are generating cash flow, avoiding mismatches. Currency risk can be mitigated by investors setting up local treasuries to issue debt in local currencies or by providing local currency guarantees project-by-project. 4. Construction risk Construction risk includes expropriation, geological and additional exposures to loss during the construction phase. Investors prefer to invest in PPPs only once construction is complete. However, de-risking projects through liquidity facilities, blended finance, subordinated debt and completion guarantees, which cover construction risk and up to the first 24 months of operation, can bring further comfort and incentivize early entry. Multilateral development banks are uniquely positioned to offer many of the solutions that address legal, regulatory and project preparation risks. IDB Invest (formerly known as Inter-American Investment Corporation), on behalf of the IDB Group, recently mitigated risks and attracted institutional investors in the Reventazón hydropower project in Costa Rica and Campo Palomas and Colonia Arias wind farms in Uruguay. The next phase seeks to bring institutional investors to PPPs and at construction phase. Besides, we can lend in local currency, as we are currently doing in Paraguay, Brazil, Colombia and Mexico, and we can also deploy guarantee and debt instruments to mitigate construction risk. Our in-house experts analyze infrastructure pipelines, support country planning and deploy financial and non-financial products that enhance infrastructure project risk profiles. IDB Invest, on behalf of the IDB Group, recently mitigated risks and attracted institutional investors in the Reventazón hydropower project in Costa Rica and Campo Palomas and Colonia Arias wind farms in Uruguay. The next phase seeks to bring institutional investors to PPPs and at construction phase. As the region’s PPP pipelines continue to grow, we will deploy the solutions to maximize PPP bankability and mobilize more financing. The boost we see in PPPs brings benefits for governments, private firms and the citizens of the countries we serve. [gallery type="slideshow" link="none" size="full" ids="7775,7776,7777"] Subscribe to receive more content like this! [mc4wp_form]
Empower women and investors will follow
Gender equality is no longer a choice for companies. It is not only about fairness, but about business success. For investors, this has become so clear that one of the world’s largest asset managers has just placed a statue of a defiant girl in front of Wall Street’s iconic bull in New York City to remind businesses that the time to fight for gender equality is now. Why? Because investors have realized that companies that foster diversity yield higher returns. More diversity improves decision-making, reputation, productivity, and employee retention and satisfaction, whTry ich in turn leads to higher returns. Companies with more diverse workforces are also better equipped to innovate in product development, tapping into new business opportunities, such as the women’s market. Investors are looking for results on gender equality But how can companies take concrete actions in line with what investors expect? The answer is not easy, as it requires looking at your company through a completely different lens. Statements and mere commitments to gender equality are not enough. In today’s data-driven world, investors are looking for information to evaluate companies’ performance and their environmental and social footprint. In the past few years, several gender equality indexes have emerged to help investors make informed decisions. Examples include the Barclays Women in Leadership Total Return Index, Pax Ellevate Global Women’s Leadership Index and the Bloomberg’s Financial Services Gender-Equality Index, among others. These benchmarks are tracking gender outcomes, including equal compensation and the number of women in leadership positions, employee policies, ability to create products and services for women, and community engagement. Some of these indexes have investment products to capture the benefits of gender diversity. Since 2014, both Barclays’ Women in Leadership Exchange Trade Notes and Pax Ellevate’s Global Women’s Index Fund enable investors to allocate capital in companies with strong female leadership. As investors’ appetite grow, similar initiatives are under way. Last year SSGA and California State Teachers Retirement System, the second-largest public pension fund in the US, launched the SPDR SSGA Gender Diversity Index ETF (SHE) to invest in companies with high levels of diversity on their boards. With over $280 million in assets, Berkshire Hathaway Inc and Oracle Corp. are among its top investors. A free tool to evaluate gender equality For those willing to roll up their sleeves and move beyond good intentions, the first step is knowing where you are and what you are doing. With this goal in mind, IDB Invest (formerly known as Inter-American Investment Corporation) and the Multilateral Investment Fund, along with UN Global Compact, UN Women and other public and private partners, have created a tool to help companies assess their gender equality performance. The tool follows the UN Women’s Empowerment Principles (WEPs) to unleash the potential of women in the workplace, marketplace and the community. The assessment is free and confidential and can be done by any company from any sector in any country. It looks at corporate policies in place and evaluates the extent to which firms provide equal opportunities, adequate work life balance, support to gender equality in the supply chain and respect to women’s rights in local communities. The tool has far-reaching potential for companies. Designed with the feedback of nearly 200 companies worldwide, the tool has proven to be eye opening for the firms that participated in the pilot phase. Some found that the assessment made them rethink their approach to gender equality in procurement and marketing, while others said it compelled senior management to improve processes. Others highlighted that the tool provided a road map to better integrate gender initiatives into the broader company’s strategy. So, if you are ready to face the bull and reap the benefits, complete the assessment and take action. Investors are waiting. This article was originally published on The Huffington Post Subscribe to receive more content like this! [mc4wp_form]
The COVID-19 Crisis: An Opportunity for the Financial Sector
Unlike the 2007–2009 crisis, when the global banking system was one of the factors that caused the economic downturn, in this crisis banks are set to be part of the solution. That is the role they must play. How can they do this?
How to achieve women’s financial inclusion: The role of financial intermediaries and strong sex-disaggregated data
In light of the number of initiatives developed in Latin America and the Caribbean to help increase the availability and use of sex-disaggregated demand-side (customer) and supply-side (institution) data across the ecosystem, you may think we’ve moved on from asking financial intermediaries: “How big is the women’s market opportunity in Latin America and the Caribbean?” to “Did the women’s market initiative perform as expected”? We have not.
Financial inclusion just a click away: E-wallets and payment platforms
By Valentina Echeverry, Opportunities for the Majority; and Sergio Navajas, MIF. In Latin America, 60 percent of the population lacks access to financial services, equivalent to approximately 250 million people. However, mobile phone penetration is between 90 and 100 percent. In some countries, such as Colombia, penetration is 105 percent. This indicates that most people have a mobile device and some, even two. What role do mobile wallets and payment platforms play in financial inclusion?