Karin Finkelston is International Finance Cooperation’s (IFC’s) first Vice President for Asia Pacific. Her responsibilities include overseeing IFC’s investment and advisory programs as well as maintaining relationships with key government and private sector partners in the region.She is leading IFC’s efforts in Asia Pacific to expand the private sector's role in reducing climate change, while promoting sustainable urbanization, inclusive rural growth, and South-South investments. During her recent visit in Nepal, she spoke to Siromani Dhungana of New Business Age. Excerpt:

 

What is IFC's overall strategy in South Asia? 

South Asia is where the world’s poorest live in large numbers. Our mission to create opportunity where needs are greatest and most relevant in this region. With many countries in the region facing development challenges and severe climate change impact amid political transition, this is a defining moment to make meaningful intervention. 

 

To meet these challenges, IFC’s strategy for South Asia is three-pronged: achieving inclusive growth, including support for frontier regions through increased access to infrastructure; addressing climate change impact through adaptation and mitigation measures; and promoting regional and global integration including South-South investments and trade finance. 

 

As Asia Vice President for IFC, how do you think IFC can help countries like Nepal in their development agenda? 

In my role as VP for Asia, I see the similarities and differences in context and potential – picking up lessons and learning from other countries is invaluable. Nepal, for example, needs to meet the most important needs of providing electricity to its people and industry and jobs to its youth. Nepal’s immense hydropower potential positions it well to respond to these needs. 

 

The needs in infrastructure, especially in energy can be met by harnessing the country's hydro potential. What are IFC's plans in this regard? 

Nepal’s hydropower potential of about 84,000 MW is enough to meet about 3 percent of the global demand for power if the potential is fully realized. So far only about 686 MW is developed whereas the total installed capacity is 740 MW. The International Bank for Reconstruction and Development (IBRD), IFC and the Multilateral Investment Guarantee Agency (MIGA) are planning to collaborate on developing Nepal's hydropower potential. IFC has supported hydropower projects in Nepal in the past as well. Two years back, we invested in a run-of-river hydropower project with Butwal Power Company. IFC's financing is helping to renovate and upgrade the power plant, including the replacement of 100-year old turbines with modern and efficient technology. The plant's output is expected to increase by 50 percent. 

 

How have you supported the private sector in other areas and businesses? 

IFC’s agenda in Nepal includes the sectors of infrastructure, finance, including access to finance for SMEs and women entrepreneurs, tourism and agribusiness. With the corporation's growing investments and advisory assistance, IFC is set to play a key role in Nepal. IFC is also working on a payment reform project and an advisory team is making important progress by building partnerships between the government and the private sector through the Nepal Business Forum. We are now working with the private sector to promote improved agricultural and water management practices and are introducing new technologies among small farmers producing rice, maize and sugarcane to adapt to climate change. 

 

IFC has been planning to issue local currency bonds in Nepal. Could you please highlight the logic behind this? 

Depending on the risk of the capital, a strong capital market helps the private sector to efficiently finance their operations instead of worrying about foreign exchange facilities. IFC supports local capital markets by issuing local currency bonds, often paving the way for other issuers. We also provide local currency finance to meet the needs of the private sector in many countries. Our projects require local currency financing as well. 

 

What do you have to say to the Nepali private sector that is focusing more on getting foreign capital than local currency funds? 

Developing local currency funds is an important element of private sector development. It helps to create access to long-term financing for large infrastructure projects and for small and medium enterprises--the key drivers of the economy. However, availability of strong local currency funds requires a conducive regulatory framework, a market and good infrastructure. 

 

There is a big chunk of work the IFC is leading on the advisory side--around reform. How do you think this can help the private sector here? 

IFC, through the South Asia Enterprise Development Facility, has been supporting the government of Nepal’s efforts to focus on growing the country’s economy by improving business environment, supporting sustainable business growth and creating jobs. Our reform programs in Nepal are aimed at making it easier to do business by reducing barriers to new business registration and streamlining the administration of taxes. We also help facilitate public-private dialogue to ensure that business reforms made by the government match private sector needs besides promoting private investments in Nepal. 

 

One problem in this regard is the Nepali rule that requires companies to show a successful operating track record while infrastructure projects need funds even before construction work begins. Have you found these to be suitable policies for economic growth? Have you found Nepali policymakers to be adaptable and responsive to change? 

This is one example of the many areas in Nepal that require policy reform. As Nepal emerges from a long period of transition, there are many such policy issues that need to be addressed to expedite the economic development agenda. The government of Nepal has taken some steps through reforms impacting critical areas such as ease and speed of doing business, promoting exports of Nepalese goods, and supporting investment generation and business growth. IFC is also working with policy makers to support private sector growth through public-private platforms such as the Nepal Business Forum, which has recommended 137 reforms of which 52 have been implemented. This clearly shows that Nepali policymakers are positive about reforms, but more needs to be done in this direction. 

 

Could you please share the experience of IFC in issuing local currency bonds in Africa and elsewhere? 

IFC has made local currency financing a priority to help develop local capital markets. Experience has demonstrated that companies that receive financing in the same currency as their revenues are more creditworthy. 

 

Local currency loans provide clients in emerging markets with sustainable long-term financing and therefore have a direct development impact. By borrowing in the local currency, clients are able to invest in their businesses and focus on their core operations without having to worry about potential changes in foreign exchange rates. In many cases, IFC is able to leverage its AAA credit rating and provide local currency loans with longer maturities than other lenders. 

 

IFC has issued a record $500 million in local currency bonds in three emerging markets in the fiscal year 2013, expanding access to finance for private enterprises in developing countries and helping insulate them from foreign exchange risks. 

 

In addition to issuing local currency bonds, the corporation provides local currency financing to meet the needs of the private sector. It has provided over $10 billion in local currency financing across 58 currencies—more than any other international finance institution. 

 

In May 2012, the IFC launched its Pan-African Domestic Medium-Term Note Programme, which focuses on Botswana, Ghana, Kenya, Namibia, Rwanda, South Africa, Uganda, and Zambia. Approvals to issue local-currency bonds in Kenya have also been obtained. Previously, the corporation worked with Ghana, Zambia, and eight members of the West African Monetary Union to establish local currency bond programmes. In 2006 and 2009, IFC issued bonds were denominated in CFA francs. 

 

IFC issues bonds as part of its regular programme of raising funds for private sector development, and to support the development of domestic capital markets. In many cases IFC is the first, or among the first nonresident issuers. As of June 30 2012, IFC had outstanding bond issuances totaling $45 billion in 11 currencies. 

 

An important element of your visit this time to Kathmandu was a gender related event. Could you tell us a little more about how you support the cause and what this event was about? 

IFC and the World Bank partnered with a local firm, YoungInnovations-- an integrated mobile and web solutions developer--and Computer Association of Nepal to reach out to a network of young techies to come up with ways to assist victims of gender-based violence. App developers came together to design solutions to address violence against women, 18 teams participated and three teams won at the hackathon. 

 

IFC champions diversity and inclusion. As part of this agenda, IFC supports the participation of women in business and we believe that firms perform better and that benefits are more widespread when women are full participants. 

 

Each year, on International Women’s Day, IFC awards its annual CEO Gender Award recognizing outstanding achievement in promoting women in business. In 2012, IFC-investee client FineChem, a chemical sector company in India, won this award for opening employment opportunities for women in the chemical sector which earlier engaged a male-only workforce. 

 

There are many examples where we helping create opportunities and employment for women in South Asia, but specifically in Nepal. IFC released a study in November 2012, which found that women entrepreneurs could play a more significant role in the country’s economic growth if financial institutions addressed their financing needs with suitable offerings. Currently in Nepal, women own about 14,300 small and medium enterprises, accounting for two percent of the GDP and employing over 200,000 workers. The study suggests that meeting their current credit requirements which totals to $106 million can increase their contribution to the economy. 

 

The Federation of Women Entrepreneurs Association of Nepal estimates that tourism benefits 750,000 local women, including many in small lodges, tea shops, and handicraft businesses apart from hotels, restaurants, tour companies and tourist sites. To increase opportunities in tourism and other industries, IFC helps Nepal’s banks become bigger players in global trade. Our $750,000 guarantee allowed Bank of Kathmandu to finance local travel agency Amravati’s transactions with DragonAir and Cathy Pacific in Hong Kong. It also helped create more jobs for women in Nepal.