This Bank Thrives On Risky Deals

The Age

Tuesday August 5, 2008

Tim Colebatch

WHEN the disaster relief teams flew into Chengdu in May to tackle the devastation of the Sichuan earthquake, with them was a team from the International Finance Corporation - with $US1 billion of guarantees for local banks so they could help small business survive and rebuild.

It exemplifies the rapidly growing role of the World Bank's private-sector offshoot. Once a minor player, it nows lends $US15 billion ($A16.15 billion) a year to business, and at current growth rates, will soon overtake the bank's lending to governments.

"Our lending has been growing 30% a year worldwide, and up to 60% in this region", says Dick Ranken, the farm boy from Avenel who now heads the IFC's operations in East Asia and the Pacific.

Mr Ranken's job is to look for risks the private banks won't take on. The IFC relishes opportunities that demand not just finance, but an infusion of management skills. It will go anywhere: the more remote, the better. And it wants to hear from potential collaborators in Australian business.

The Sichuan earthquake was an example of the IFC seeing a niche no commercial bank would fill. "The Chinese Government was focused on rebuilding schools and communities," Mr Ranken says. "We saw that the devastation also extended to a lot of farms and small businesses, and they needed money to rebuild.

"We stepped in with guarantees and technical advice for the banks on how to assess credit risks, and set up lending criteria. It's a very good example of what the IFC does best."

It wasn't the first time it had played that role. In 1999, when China first allowed foreign banks to take a stake in its rickety state-owned banks, there was no interest. "So we took a stake, and sent in experts to improve their risk assessment and lending practices,"

Mr Ranken says.

"The result was that over time, they became credible banks, and attractive to foreign banks. So the IFC is now exiting those banks, because we've played our role - and made a profit on the way."

The IFC used to lend largely to middle-income countries, but as private banks have moved in to that role, it's now looking at tougher cases - such as the South Pacific.

It was the IFC, as adviser and deal-maker, that introduced the Samoan Government to Virgin Blue - leading to Samoa's loss-making airline becoming the profitable Polynesia Blue. Now the IFC is putting its money into helping Digicell spread mobile phones through the region.

In Papua New Guinea, Mr Ranken says, mobile phone penetration has soared in nine months from 60,000 to more than 700,000. "The development story is very important in this. It opens up all sorts of options."

© 2008 The Age

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