The head of the IDB’s new IIC visits Jamaica with new vision
The Inter-American Investment Corporation (IIC), the private sector lending arm of the Inter-American Development Bank (IDB), as at November 1st last year, has a new chief executive officer (CEO), James Scriven.
On January 1st, 2016 the ‘new’ IIC was launched, fulfilling a commitment made by the IDB in Korea last year. This involved reorganising the work of three of its four private sector areas so that all of the IDB’s private sector lending now occurs “strategically” through the IIC, rather than occurring in an “uncoordinated”, even “competing” fashion in a number of different areas in the bank.
The IIC has US$7 billion in assets and employs 400 people, including 30 physically outside of Washington. It has 330 active clients, with 450 projects in more than 20 countries. In addition, the IIC will be recapitalised with the injection of an additional US$2 billion over a 10-year period, bringing the total to US$2.7 billion by 2025. It intends to lend US$2.9 billion this year, rising to $4.5 billion annually at the end of the 10-year period. In addition to its roughly $3 billion of planned direct lending, the IIC also hopes to mobilise and manage an additional $3 billion in third party lending this year.
According to Scriven, the IIC will become more client-focused with greater flexibility to deploy more equity, structured finance, local currency, blended finance, and other advisory services.
He adds that it will “get closer to clients, and have a much better understanding of their business” by creating a much stronger “field presence”, moving the percentage of staff in the field – outside of Washington – from less than 10 per cent currently to more than 40 per cent in the next three to four years.
It will focus on four main sectors: transport – “its mandate is to be bold in infrastructure”, energy, financial sector, and agribusiness. The financial sector will represent between 40 and 45 per cent of new lending, corporates (mainly agribusiness) will represent about 20 to 25 per cent, and infrastructure roughly 40 per cent.
Whilst there is no written commitment, the expectation is that between eight to 10 per cent of the new lending will be for the Caribbean region, and the dollar amount of Caribbean lending will grow proportionately over time along with the overall increase in IIC lending.
Asked to describe the IIC’s philosophy, Scriven described it as “finance with a purpose”, providing solutions “seldom just money” through “knowledge and expertise.” The IDB’s areas of expertise include corporate governance, the environment and social sectors, and risk management.
Scriven notes the IIC wants its projects to have development impact – “what is the money going to be used for beyond just capital”; display commercial criteria – “its credit officers will look at a deal like a commercial bank”; and display additionality “we should not compete with the private sector, rather we should prove we can do something no one else can do”.
Asked whether they would finance tourism, or even a high-end hotel such as a Sandals, Scriven observed that it was not a question of risk perception (their shareholders were after all governments), but they would need to be able to answer the obvious shareholders question of “why were they using taxpayers money to finance high-end hotels”. Their “sweet spot” would be something “highly developmental”, with their “ideal entry point” either something driving local development, such as the local value chains of small and medium-sized enterprises (SMEs), or sustainable tourism orientated to energy efficiency or climate adaptation.
A good example of this was their decision to help finance the new Courtyard Marriott in New Kingston, which had both development impact through employing “inner-city” youths from the IDB-supported Citizens Security and Justice Programme (CSJP), and extremely high-energy-efficiency certification “the greenest building in Jamaica”, according to locally-based IIC Investment Officer Stefan Wright.
Asked whether he would finance regional airlines, Scriven advised that while they could consider “the right project”, citing the success of COPA in Panama, they haven’t had a good experience with small one to two plane airlines. While air transport was a big pillar of regional integration, and would therefore be both developmental and demonstrate “additionality”, there was a real question about whether it would meet the third test of commercial viability.
Asked why one should borrow from the IIC if one just gets commercial terms, Scriven observed that the IIC is happy to make a ten-year loan (a typical regional commercial bank may only want to lend for five years for say a tourism project), while some banks may not want to lend for new tourism construction at all.
Another one of the IIC’s key competitive advantages is its “stamp of approval”, with other commercial lenders happy to lend on the basis of their extensive due diligence or piggy back on one of their loans. Frequently banks will lend alongside the IIC as a “lender of record”, thereby allowing a commercial bank to avoid exposure to transferability or convertability risk.
The IIC is also in the business of financial inclusion, meaning “access to affordable financial services for both individuals and businesses”. Most large companies have access to finance, but the same is not true for those companies at “the bottom of the pyramid”, normally SMEs. In addition to poor access to credit, they may not have access to savings accounts or insurance. Scriven believes there are very specific segments, such as rural SMEs or agribusiness, where the IIC can make a difference.
While the IIC is never going to be a commercial bank, with only 400 people and 20 offices, it has 110 banks as clients, which he calls “partners in development”, through which they reach about one million individuals in the region.
Asked about the IIC’s view of the global push against “offshore” jurisdictions, many of which are based in the region, and whether it has affected the IIC’s ability to do business in the region, Scriven notes that this has not affected the IIC’s operations. They had no problem, for example, doing business with commercial banks in Panama, as the level of scrutiny the IIC requires to do business with is already extremely high.
He adds that offshore companies with complex structures don’t want to do business with us as we will do a “forensic” audit to determine where the main office is located and already follow OECD rules on tax, etc.
He also addressed the global phenomenon of derisking, where correspondent banking lines are being cut as global banks regard the potential risks as too costly for the small amount of business that banks do in the region. He observes that the IIC has a trade facilitation programme where “we assume the risk through a guarantee programme”.
Scriven, a native of Argentina and who was chosen through competitive selection process, was the chief financial officer of an Argentinian bank before being asked to join the World Bank’s private sector financing arm, the IFC. His first job was to restructure the exposure of the IFC to Argentina before moving to their Financial Institutions Group in Washington.
In all, Scriven spent 15 years working for the World Bank, including assignments in Africa, ending his career there as chief risk officer, with the title of vice-president, risk and sustainability.