MICROCAPITAL STORY: The International Finance Corporation (IFC) in Washington, DC and European Investment Bank (EIB) in Luxembourg Create the Global Emerging Markets (GEMs) Risk Database Consortium with the European Bank for Reconstruction and Development (EBRD), African Development Bank (AfDB), and Inter-American Development to Join (IDB)

The International Finance Corporation (IFC), a member of the World Bank Group, and the European Investment Bank (EIB), the long-term lending bank for the European Union (EU), have agreed to create a Global Emerging Markets Risk Database Consortium. Other international financial institutions (IFIs) that will be joining the Consortium include the European Bank for Reconstruction and Development (EBRD), the African Development Bank (AfDB), and the Inter-American Development Bank (IDB). The Consortium is to pool data on individual institutions and strengthen risk-management practices among multilateral banks.

The IFC and EIB worked to standardize the data collection processes for individual institutions. The agreement formalizes the relationship between the IFC and EIB in the area of pooling loss data and credit-risk data, such as default and recovery rates, that are part of the risk assessment process. They structured the data in a way that keeps the counterparts’ identities anonymous and preserves data confidentiality. Standard & Poor’s, based in New York and a provider of independent credit ratings, indices, risk evaluation, and investment research and data, has independently reviewed the risk database and common methodology adopted by EIB and IFC. The database will be made available to other multilateral development banks, and provide a framework for potential partners. Moreover, it will provide a common platform for knowledge sharing. Further details on the information being shared are not currently available.

The AfDB Group Risk Management Department Director, Kodeidja Diallo provided an interview where she stated that risk management parameters, particularly probability of default, in the institutions’ lending operations were important. These parameters are used to determine the adequacy of any bank’s capital, pricing, and provisioning based on the risk profile of its assets. Moreover, she noted that both the IFC and EIB have large lending portfolios, largely in the private sector, and therefore their information bases are large, whereas the AfDB has more history in sovereign lending. Established in 1963, AfDB is a regional multilateral development bank that offers loans, equity investments and technical expertise in Africa. According to its website, membership of the AfDB Group, as of the end of December 2007, includes 53 independent African countries and 24 non-African countries. As for the IFC and EIB, the IFC’s new investments totaled USD 16.2 billion in 2008, and according to the EIB’s 2008 annual report, its aggregate loans granted totaled EUR 350.8 billion (equivalent to USD 489.2 billion). Furthermore, Ms. Diallo explained that by working together, the institutions can expand the overall data consortium, and make it more reliable from an industry, sector, instrument, products and obligor perspective.

Established in 1956 and based in Washington, DC, the International Finance Corporation, a member of the World Bank Group, fosters sustainable economic growth in developing countries by supporting private sector development, mobilizing private capital, and providing advisory and risk mitigation services to businesses and governments. Its net worth at the end of 2008 was USD 18.3 billion.

The European Investment Bank is the long-term lending bank for the European Union, established by the Treaty of Rome in 1958. EIB is an international financial institution, a publicly owned bank, and its owners are the Member States of the EU. Its task is to contribute to the integration, balanced development and economic and social cohesion of the EU Member States. EIB supports the EU’s priority objectives, especially European integration and the development of economically weak regions. The EIB raises funds on the capital markets, which it lends to projects furthering EU policy objectives. According to its 2008 annual report, it has assets totaling about EUR 352 billion (equivalent to USD 490.8 billion).