Corporate Finance

“Mobilizing private capital is a key priority right from the beginning”

Dr. Joachim von Amsberg, a former World Bank official, responsible for driving the strategic direction for the Asian Infrastructure Investment Bank and overseeing its environmental and social policies. He helps lead the institution's efforts to boost regional prosperity through development financing different from that seen at Western banks.

Dr. Joachim von Amsberg, a former World Bank official, responsible for driving the strategic direction for the Asian Infrastructure Investment Bank and overseeing its environmental and social policies. He helps lead the institution's efforts to boost regional prosperity through development financing different from that seen at Western banks.


Leaders League. How to deal with credit risks?

Joachim von Amsberg. We engage in policy dialogues with countries to make sure we are funding their priorities. The dialogues also create a joint ownership for the projects. Borrowing countries do provide policy support to ensure project success.  

 

AIIB has put in place a strong risk management framework for sound and sustainable banking. We invest in a diversified portfolio of projects across countries, including middle or high-income countries. We make the necessary loss provision, and determine the economic capital for every loan or equity investment we make. We also plan prudently and ensure we have adequate capital to support our lending program for clients through the economic cycle.

 

In June, AIIB approved its first equity investment in India. What are AIIB’s preferred investment methods?

We select the investment instrument most suitable to achieve our mandate of investing in infrastructure. We don’t favor any particular investment instrument. In this specific case, we are investing in a fund to mobilize other investors. This fits our key priority of mobilizing private capital to meet Asia’s huge infrastructure needs, and our objective of meeting the investment needs of our member state. 

 

You have stated that AIIB is keen to play a catalytic role through project finance with the private sector. What exactly does this entail? 

Asia’s infrastructure needs are so huge that they can only be addressed by bringing in private sector capital. Hence, mobilizing private capital is one of our key priorities right from the beginning. We hope to play a catalytic role in a few steps. First, we will work with private investors to support projects. For example, they may need co-financing for large projects or require longer tenor loans which we can provide. We also have a special fund for project preparation in low-income countries to make them more bankable. In time, we will provide more instruments (e.g., guarantees, local currency loans) to reduce risks to projects and catalyze more investments. We are also working with private sector investors to contribute to the effort of making infrastructure into an asset class over the long term.

 

As the AIIB expands, how do you balance the competing needs of member countries?

While we have 80 members, not all will require our capital for infrastructure development. For projects that come to the bank for funding, we will assess each project by their merit (a) financial and economic sustainability (b) environmental and social safeguard (c) social acceptance.

 

After the investment or loan is approved, we require investees or borrowers to report back to us on project progress. We also support project implementation and monitor project progress. Increasingly, monitoring can be done by technology. In a recently approved project, there will be on site cameras and GPS to help us track implementation progress online. This increases efficiency for both the Bank and the borrower.

 

Apart from the infrastructure/finance paradox, what other challenges does AIIB face?

Besides mobilizing private capital, we have two other thematic priorities. We hope to help integrate regional economies through cross border connectivity. We also want to help countries transit to low carbon growth paths.

 

Institutionally, our challenge would be to deploy our capital optimally – to maximize development impact while keeping to principles of sound banking.

 

What do you think of the development of mobile payment in developing countries?

Mobile payment is indeed an interesting area, it cuts across (a) digital and ICT infrastructure (b) inclusive growth in bringing digital and financial access to many and (c) integration of economies, such as through payment systems or e-commerce.

 

I can see AIIB investing in hard ICT infrastructure (e.g., fiber connectivity) to support growth in these areas. I also can see us investing in digital platforms that bring about financial access and integration. We don’t yet have a fully-fledged investment strategy, but we are watching and studying this space with great interest.

 

Germany is the largest investor outside Asia, is there one specific area that you will promote collaboration between China and Germany?

AIIB, of course, is a multilateral platform that acts on behalf of its entire membership. But separately, on bilateral cooperation, climate change is one example and one key area where Germany and China can collaborate effectively, and create big impact globally. China, through its manufacturers, has reduced the cost of solar panels and thus improved the economics of such renewable projects. Germany has very deep interest in promoting clean energy. There is thus a lot of alignment to promote further collaboration.  

 

 

 

Read the full Special Report: China: Game Changing

The growth story of China’s legal and financial industries is both a product and a testimony of this country’s continuous economic transformation: nascent but fast-growing, vastly different from a decade ago and still rapidly changing. The game has started, and faced with various issues, both international and domestic firms are constantly responding, rethinking, reshaping, readjusting… To survive and thrive, they need to master the fine art of balance between growth and profitability, expansion and quality control, opportunities and risks.

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