IFC increases its lending exposure to MENA projects

These are cautious times for most Middle East investors - but not for the International Finance Corporation (IFC), the private-sector arm of the World Bank, which is ramping up its exposure to the region's economies. With international credit markets in a sclerotic condition, the agency has a mandate to play a counter-cyclical role, said Michael Essex, the IFC director for the region.

So, while other investors are holding back, his organisation is deepening its presence in the MENA region, particularly in less stable countries. "We've been asked for all sorts of extra lending as a result of the crisis, and we're doing all we can to mobilise trade and investment," said Mr Essex. "For example, we're supporting trade finance deals worth nearly US$500 million [Dh1.83 billion]." In the past fiscal year that ran to the end of June, IFC approved $490.6m in trade finance guarantees in the region, more than double the year before, and issued 447 guarantees - three times the number for fiscal year 2008.

The corporation's country exposures are increasing exponentially. In Egypt, its portfolio grew by $120m in fiscal 2009 to $619m. In Jordan, an extra $60m brought its portfolio to $316m for the year. In the region as a whole, equity investments nearly doubled to $473m.Globally, new investments by the IFC totalled $15bn in fiscal 2009, a level of commitment that it said would play a prominent role in addressing the financial crisis.

Its Middle East activities range from straightforward equity investments to financing, capacity building and advisory services. "Some of the main tools to counter the downturn are trade finance and microfinance. We've already invested in 14 microfinance institutions, and many of their financings are being structured Islamically, such as through ijara [leasing] structures," said Mr Essex. Last month, the IFC signed a $50m financing agreement with Kuwait Energy to help it accelerate the development and exploration of its oil and gas assets in Egypt and Yemen.

The IFC's financing package consists of a $35m reserve-based facility and a $15m income participation facility. The financing uses a murabaha structure, commonly used in Islamic financial transactions. The Gulf's burgeoning economic links with the wider MENA region are also forging new roles for the IFC, which normally would have limited involvement with wealthy hydrocarbon-rich nations. Part of the IFC's strategy in Saudi Arabia and other Gulf states is to help structure cross-border investments, including bank expansions, helping banks in the wealthy petro-economies to deploy their capital efficiently.

In Iraq, the IFC has formed a partnership with the National Bank of Kuwait (NBK), to acquire a minority stake in Credit Bank of Iraq. NBK was among the first three international financial institutions to receive a full domestic banking licence from the Central Bank of Iraq. "We're now actively encouraging Gulf banks to enter and expand operations in countries like Yemen, where the local banks are undercapitalised," said Mr Essex.

"You are also starting to see Gulf banks looking to become pan-MENA operators, investing in less affluent countries as part of an ambition to be seen as genuinely regional." Private equity support is another growing focus for the IFC. In May, it announced a $25m investment in the MENA Joint Investment Fund, a $500m fund backed by the Egyptian buyout firm Citadel Capital. Citadel will invest in seven to 10 mid-sized to large platform companies in the region from diverse industries such as packaging, waste management and recycling, textiles, agribusiness and renewable energy.

The deal suggests that regional financial institutions are increasingly well disposed towards the IFC. "We provide a level of political comfort," said Mr Essex. "IFC investments ensure there will be fair treatment." @Email:[e-mail]