The Asian Infrastructure Investment Bank (AIIB) and the International Finance Corporation (IFC), a member of the World Bank Group, have signed an International Swaps and Derivatives Association (ISDA) Master Agreement to enhance their capacity to make investments in emerging markets projects, especially in Asia’s infrastructure sector.

This marks the first financial collaboration agreement between the two development finance institutions. ISDA has various documentaion templates, that help in negotiating execution-related agreements between counterparties, including for cleared swaps, and for some over the counter (OTC) swaps that still remain uncleared.

Under the agreement, AIIB and IFC will be able to hedge with each other the interest rate and currency risks associated with investments, expanding their overall lending capacity. IFC has already entered in similar agreements with the African Development Bank, the Asian Development Bank and the European Bank for Reconstruction and Development.

"This agreement facilitates AIIB’s ability to support our clients’ projects and help promote local currency bond issuance," said Soren Elbech, Treasurer at the AIIB. "Multilateral financial institutions, like AIIB and IFC, have a much larger risk bearing capacity, compared with private sector companies in the countries where we lend. It therefore makes a lot of sense for us to create financing solutions that significantly reduce our clients’ risk of losses from such currency risks."

"Modern infrastructure is essential for lasting growth and prosperity, yet the financing gap in this sector is huge, totaling trillions of dollars a year in emerging markets alone", added Andrew Cross, IFC Deputy Treasurer for Asia. "Our partnership with AIIB will enable us to offer more efficient infrastructure financing through the broader use of capital markets tools."

Earlier this year, IFC launched an innovative program, known as MCPP Infrastructure, which will raise US$5 billion from global institutional investors, such as insurance companies, to modernize infrastructure in emerging markets over the next five years.

Photo courtesy of Asian Infrastructure Investment Bank.