Blended finance acts like a catalyst for infrastructure development

Standard Chartered Bank organised a conference on ‘blended finance’ along with Investment Board Nepal and the Confederation of Nepalese Industries, last week, with the participation of a wide range of stakeholders, experts, bureaucrats and practitioners. Blended finance is an idea related to pooling public and private resources to finance bankable projects, and is expected to provide necessary momentum to infrastructure financing in the country. Infrastructure bottleneck is the major constraint to unleash the economic potential of the country. Pushpa Raj Acharya of  The Himalayan Times caught up with Nirukt Sapru, CEO, Vietnam, and ASEAN and South Asia Cluster Markets - Standard Chartered Bank, on the sidelines of the conference to learn how blended finance can support infrastructure development. Excerpts:

You are here for the Blended Finance Conference Nepal 2018. Could you shed more light on this financing model?

Blended finance is basically private and public pools of capital to help in development. Private pool is from private insurance companies, banks and individuals. Public funds are like resources from multilateral agencies, development banks, expert credit agencies, other developmental agencies, and bringing the government of a particular country along through either guarantees or helping it to draft public policy frameworks. When public and private resources are brought together it will help meet the country’s financing needs. Otherwise, it is difficult for commercial banks to manage financing on their own. This is the real value of the conference that we have jointly organised with Investment Board Nepal and the Confederation of Nepalese Industries. Through the conference Nepali stakeholders were able to understand the benefits of blended finance and now they can take advantage of it in coming days.

How can Standard Chartered Bank help Nepal in blending such resources and what are the prerequisites to materialise such financing?

From our perspective, given an international network and connectivity and our deep understanding of Nepal, Standard Chartered is uniquely positioned to help Nepal. We know about the opportunities that blended finance offers. We held a dialogue with policymakers during the blended finance conference and also on the sidelines of the conference. The burning issue at the moment is about developing enabling infrastructure which can usher in market opportunities. And the conference has discussed on such aspects. One aspect is the broad policy framework through which we can take advantage of any sort of avenue to finance infrastructure. It is all about creating an enabling policy framework. Second is encouraging the private and public sector to work together. Third is identifying bankable projects and offering them the investment they require. The blended finance conference has triggered a conversation on all these three areas and also encouraged multilateral agencies and private and public institutions to develop a mindset of interconnected and dependent network and to realise those projects that are bankable.

You have stressed the need for a congenial policy framework. Can you briefly elaborate on it?

There are markets such as the Philippines, which has created good public and private partnership (PPP) policy framework. Bangladesh also has done some good work. It is basically about creating a broad enabling framework and typically there is one agency that helps in coordinating the foreign and local investors to get projects started.

Could you share your experience on blended financing in African countries?

Asia is a bit behind on blended finance as compared to some other markets like Africa as they have spent more time on it. Some of the African countries perhaps needed a bit more financing because they were in the initial stages of development. There are clear opportunities for Nepal to take advantages of the opportunities that blended finance provides, which works as a catalyst to help particularly in infrastructure financing. We have seen this in a number of countries and we hope that we can be the ‘thought’ leaders in driving some of the areas to success.

Foreign direct investment in Nepal is at a dismal 0.4 per cent of the GDP and there are calls for the country to have sovereign credit rating to attract FDI. What is your take on this?

The basic issue is regarding the opportunities that your country has to offer. First is how do international investors benchmark the risk that Nepal poses to their investment relative to another country. This is the first aspect that international investors look to evaluate — how risky a market is and will the returns justify taking the risk. That’s why things like credit rating agency help international investors to understand relative risks. It’s not about absolute risks but about relative risks — like the international investor can compare whether Nepal is less riskier than another country. Therefore, Nepal needs to embark on a storytelling journey, and that storytelling journey should include things like Nepal is a vibrant economy with exciting talents and that there are developments going on in terms of both physical and digital space. And I feel Standard Chartered can help in telling that story and getting the message across the world because we are an integral part of Nepal’s banking fraternity having been here since the last 30 years. What we brought is connectivity of investors and corporates for Nepal to the international world and helped Nepali businesses integrate to the global supply chains. We have become a part of the interconnected global highway or ‘one belt, one road’ or digital platform and those are the areas where Standard Chartered can provide thought leadership and physically help the government and private sector of Nepal.

What should Nepal do to attract investment in the country?

Along with the stable political environment there are signs of business climate improving in Nepal. Every country needs to put in a lot of effort to attract investment. There are no such markets that are complete and do not have anything more to do. You can look at something and say there is more to do or a lot has been done. I am of the belief that a lot has been done in Nepal but a still lot more needs to be done. The focus should be on corporate governance and trying to draft a policy framework that is more supportive of the business climate. I see progress in interconnectivity and physical infrastructure in Nepal and am excited about the future with its  vibrant population.

Despite many investment conferences being held nothing substantial has materialised till date. How do you think will this conference make a difference?

There has to be follow-up from both the private and public sector in moving this idea forward. The crucial aspect is that both sides have to follow up on their discussions. Standard Chartered has helped to bring both the public and private sector together. Experts, bureaucrats and practitioners have come together and discussed on ways to take this idea forward. Another thing from the longer-term development perspective of Nepal is embracing the digital future and the interconnected world. We are bringing cutting-edge technology and making it convenient for  our clients who bank with us. The question is how we get the efficiency of the interconnected world or how do we connect the Nepali population with what’s happening in the rest of the world.

The government has envisioned to encourage banks and financial institutions to lend in productive sector, which is the driver of economic growth. However, BFIs have been facing liquidity swings at short intervals of time. In this scenario how can BFIs extend long-term lending?

In every market we operate, we try to do the right thing for the economy and for our clients. We are trying to implement good quality practices by including our environmental and social responsibilities to encourage long-term trends towards healthy banking practices. Every government wants to manage inflation and disburse credit in the right sectors so that they do not face structural imbalances or challenges of an asset bubble. This is an ongoing discussion in every market. From Standard Chartered’s perspective we are trying to do the right things on a long-term basis for the country and our clients.