Securing a role for the private sector: IFC’s first securitisation transaction aims to mobilise private capital, but at what cost?
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Article summary
- The IFC has made its first ever securitisation transaction, comprising a $510 million collateralised loan obligation backed by 57 private sector loans.
- Operation increases IFC lending capacity, but questions about development impact remain.
The International Finance Corporation (IFC), the World Bank Group’s (WBG) private sector arm, has made its first ever securitisation transaction, under a new model that aims to “attract institutional private capital into emerging markets,” using an originate-to-distribute model specifically for emerging market investments.
In late September, ahead of the October World Bank and IMF Annual Meetings held in Washington DC, the Bank issued a statement announcing the closing of a $510 million collateralised loan obligation (CLO) backed by 57 private sector loans (which are packaged together and sold in tranches). World Bank President Ajay Banga recently told the Financial Times that he intended this to be the start of regular offloads of its loans to private investors, noting that “the amount of private capital flowing into emerging markets has not shown the promise of billions to trillions,” despite the Bank’s previous promises (see Observer Summer 2025).
The process of securitisation, whereby loans (in this case, IFC originated loans) are pooled and repackaged into marketable securities, is intended to increase the IFC’s lending capacity and bring more private sector investors to emerging markets by creating a new asset class, which meets institutional investment standards. Under the leadership of Banga – a former CEO at Mastercard – and amid widespread cuts to Official Development Assistance (ODA), the Bank has tasked itself with finding new ways to mobilise private capital and increase financing options for its work.
Development impact at risk
Unlike the typical derisking model that sees development banks and states assume risk on behalf of the private sector – for which the Bank has its dedicated Multilateral Investment Guarantee Agency (MIGA) arm (see Observer Autumn 2017) – securitisation can free up capital and balance sheets to create additional capacity for lending, and potentially remove risk – since assets are transferred – although Banga has noted that removing risk was not the primary purpose. A 2019 report by Professor Daniela Gabor, Securitization for Sustainability, highlighted that such a model of financing quickly becomes murky and opaque when global and shadow banks become involved, which is especially salient under the IFC’s model of development that has been challenged by Bank watchers for years for prioritising profitability over developmental impact. This comes amidst fears for the future of accountability mechanisms at the World Bank, with the ongoing possibility that the WBG’s Independent Accountability Mechanism and IFC and MIGA’s Compliance Advisor Ombudsman may be merged (see Observer Winter 2025).
Same but different
At a time when international financial institutions are being scrutinised for the role they play in development and in the global financial architecture (see Dispatch Annuals 2025), the Bank’s latest move to mobilise private finance will undoubtedly be met with scepticism regarding its value to achieving development objectives such as the Sustainable Development Goals (SDGs), and indeed economic transformation. Others have also questioned the difference between privatisation and securitisation, when both require public entities to surrender control over assets. While groups such as the Group of 24 provided vocal support for the announcement, Gabor’s report queries whether securitisation as a derisking instrument would be conducive to achieving the SDGs, and concluded that, under the Wall Street Consensus (which sees international development as an opportunity for global finance profits), potential gains from selling development finance loans to markets are “overstated, while the costs – in terms of structural changes in the financial sector, (de facto) privatization of public services through public-private partnerships (PPPs) and the narrowing of policy space for a green developmental state – are downplayed.”
