Funding Organization: IFC Risk Sharing Facility

PROFILE

Total Amount Project dependent
Financing Mechanisms Risk management
Qualifying Projects Adaptation , Mitigation
Eligibility N/A

Funding Objectives

Risk Sharing Facilities allow clients to transfer credit risk to IFC from their own portfolio or from a new portfolio they originate. The assets typically remain on the clients’ balance sheet, and the risk transfer comes from a partial guarantee provided by IFC. In general, clients will enter into such a facility with IFC because it helps them increase their capacity to originate new assets within an asset class in which IFC seeks to increase its own exposure.

Financing Mechanisms

A Risk Sharing Facility (RSF) is a bilateral loss-sharing agreement between IFC and an originator of assets in which IFC reimburses the originator for a portion of the principal losses incurred on a portfolio of eligible assets. The originator may be a bank or a corporation. The RSF product allows a client originator and IFC to form a partnership with the goal of introducing a new business or expanding an originator’s target market. In addition to sharing the risk of loss associated with the covered asset portfolio, IFC is often able to arrange for the provision of advisory services designed to expand a bank’s or corporation’s capacity to originate, monitor, and service the assets.

Originators typically find RSFs of value when introducing new products or when targeting new consumer or business segments—circumstances in which little or no historical performance data may be available to estimate potential losses. The absence of historical loss experience in volatile markets may serve as a significant constraint on the extension of credit to underserved markets. The IFC RSF is designed to reduce this constraint by sharing with originators some of the risk of loss associated with the desired extension of credit. In addition, the IFC RSF may enable a bank or corporation to originate additional business without exceeding internal country, single-obligor, or industry exposure limits and may reduce the portfolio’s economic capital allocation.

Application Procedures

Depends on the transaction. In general according to IFC investment procedures.

Project Types

Risk sharing facilities are available to cover loans from a wide variety of sectors, including (but not limited to), mortgage, consumer, student, school, energy efficiency, and SME businesses. Portfolios of corporate receivables can be considered as well. The RSF typically covers assets newly originated during the term of the RSF, but, under certain circumstances, coverage may also be extended to assets originated prior to the initiation of the RSF coverage.

The RSF product by itself is most appropriate for originators requiring credit risk protection but not funding. If funding and credit protection are both desired, IFC can offer a loan in conjunction with a RSF to help build the portfolio of eligible assets.