Onome Amuge
The World Bank has taken a decisive step toward reimagining its role in global development finance, as its private sector arm, the International Finance Corporation (IFC), completed its first securitisation transaction designed to draw institutional investors into emerging markets.
The $510 million collateralised loan obligation (CLO), unveiled recently and listed on the London Stock Exchange, repackages IFC loans into rated securities that meet the risk-return thresholds of pension funds, insurers and asset managers.
Ajay Banga, the World Bank president who has made private capital mobilisation a central plank of his leadership since assuming the role in 2023, described the transaction as “step one in an originate-to-distribute strategy” that will allow the Bank to recycle capital into new projects while offering investors exposure to a largely untapped asset class.
“Mobilising private investment at scale is essential to creating the jobs that give people a ladder out of poverty and begin the journey of changing a family’s trajectory for generations. The opportunity and the need are much larger, and so is our ambition,” Banga said.
The deal’s structure is notable for its layering of risk. A $320 million senior tranche was sold to private investors, a $130 million mezzanine slice was supported by credit insurance from a consortium of providers, while a $60 million equity tranche remains with IFC. Goldman Sachs acted as arranger, with investors said to include global asset managers seeking higher yields in a low-interest environment.
Analysts view the CLO as the prototype for a new development-focused asset class, giving institutional investors access to emerging-market credit that would normally be out of reach due to liquidity, regulatory and information constraints. The IFC, meanwhile, gains the ability to rotate capital more quickly, stretching its balance sheet across more projects without diluting standards.
According to the World Bank, the move stems from recommendations of the Private Sector Investment Lab, a body established in 2023 to identify barriers to private flows into emerging markets. One of its conclusions was that DFIs like IFC needed to shift from acting as lenders of last resort to market-makers, creating vehicles that crowd in private capital rather than crowding it out.
Development economists note that public resources and concessional lending alone cannot meet the $3-4 trillion annual financing gap for infrastructure, energy transition and social services in low- and middle-income countries.
The IFC insists the structure is scalable and replicable, with further issuances planned. But the approach is not without risks. Securitisation carries the stigma of the 2008 global financial crisis, when opaque mortgage-backed securities helped trigger systemic collapse. Ensuring transparency, rigorous credit underwriting, and effective risk distribution will be critical to maintaining investor confidence, analysts stated.
Critics also caution that institutional investors may shy away from lower-rated exposures, potentially limiting the reach of capital to the riskiest but most needy markets.
