BUILDING LOCAL CREDIT MARKETS

1
BUILDING LOCAL CREDIT MARKETS
2
Vehicles for Local Credit

• Banks
• Municipal Bonds
• On-Lending External Credits
• Environmental Funds
• OBJECTIVE Build a Consistent System of Credit

3
Dangers of Fragmentation

• Brazil30 years of on-lending no market
• Indonesia52 default rate on water loans
• Municipal Bank Monopoly?
• Tax Exemption only for Municipal Bonds?
• OBJECTIVE Level Policy Field

4
Goals for Maturing Market

• Identify Credit Risk
• Reduce Credit Risk
• Tap Long-Term Savings for Long-Term Credit
• Provide Technical Support for Local Financing

5
Identifying Risk

• Credit Ratings
• Their Special Role in Local Borrowing for
  Developing Countries
• Disclosure before Credit Rating

6
Reducing Credit Risk (1)

• Building Precedents for Repayment
• Indonesia
• Kenya
• Lockbox Approaches to Revenues
• Ahmedabad Bond
• Municipal Utilities
• Role of Trustee

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Reducing Risk (2)

• Collateral
• ChinaLand
• Other Assets
• Intercepts Offsets
• Tamil Nadu v. Brazil

8
Tapping Long-Term Savings

• Insurance Companies
• The prudential investment test
• Pension Funds
• Legal Restrictions (e.g. Poland)
• Paradox of US Tax Exemption
• Secondary Market
• Securitizing Local Loans?
• Re-selling Municipal Bonds?

9
Banks or Bonds?

• Partnership Banking with Technical Support
• BondsUnbundling the Partnership

10
Blending Grants Subsidies

• Blockage of Credit Created by Poor Design
• Initial E. European Environmental Funds
• Revolving Funds
• Way to Introduce Subsidies to Market-Based Credit

11
Blended Credit Systems

• China
• Full Tariffs for Wastewater Treatment Plants,
  plus Asset Collateral
• Bank Lending Enterprise Bonds
• South Africa
• INCA as Specialized Intermediary
• Czech Republic
• Banks and Bonds