EMCompass Notes

doi:http://dx.doi.org/10.1596/39397

Report Series: EMCompass Notes

As part of the Economics and Private Sector Development Vice Presidency, IFC’s Thought Leadership regularly publishes EM Compass Notes as part of its regular work program that includes the dissemination of knowledge, trends and emerging solutions on topics and issues that are of specific interest to companies, multilateral development institutions and regulators. Its purpose is to generate fresh ideas about business in emerging markets. The Notes range from usually 4-8 pages and are geared toward clients and private investors, in addition to the traditional development community.

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Financing Deep Tech
(World Bank, Washington, DC, 2021-10) Nedayvoda, Anastasia; Delavelle, Fannie; So, Hoi Ying; Graf, Lana; Taupin, Louise
Deep tech companies - those built on advances in biotechnology, robotics, electronics, artificial intelligence, and other advanced technologies—aim to solve complex social and environmental challenges. Today the majority of deep tech companies are being launched in developed countries, yet the solutions they can provide are applicable globally. Many of these solutions are especially critical to emerging markets, as the intractable challenges of climate, health, and connectivity, among other issues, disproportionately affect these nations. Addressing these challenges is a strategic priority for development finance institutions and governments worldwide, so financing deep tech companies and boosting deep tech ecosystems in order to deliver new solutions globally is a pressing matter. Doing so, however, requires substantial capital and carries a higher degree of risk than ordinary venture investments. This note examines the process of financing a deep tech company, including the benefits and drawbacks of currently available types of financing, and suggests examples of promising but not yet widespread alternatives.
Banking on FinTech in Emerging Markets
(International Finance Corporation, Washington, DC, 2022-01) Rose Innes, Cleo; Andrieu, Jacqueline
Despite near-universal access to financial services in advanced economies, financial exclusion is stubbornly persistent in many emerging markets, leaving huge swaths of low-income populations unbanked or underbanked. FinTech companies, which apply innovative technologies to deliver such services in new ways, have begun to tap into the enormous unmet demand that this represents. These companies are starting to thrive in emerging markets, though regulatory issues, particularly weak consumer protection measures, remain to be resolved in many countries. If these can be overcome, and more progress toward universal access to digital infrastructure can be made, FinTechs will continue to scale and spread.
Sustainability-Linked Finance: Mobilizing Capital for Sustainability in Emerging Markets
(International Finance Corporation, Washington, DC, 2022-01) de la Orden, Raquel; de Calonje, Ignacio
Sustainability-linked finance is designed to incentivize the borrower’s achievement of environmental, social, or governance targets through pricing incentives. Launched in 2017, it has now become the fastest-growing sustainable finance instrument, with over $809 billion issued to date in sustainability-linked loans and bonds. Yet these instruments are still nascent in emerging markets, which represent only 5 percent of total issuance to date. This note shares examples of recent sustainability-linked financing, including several involving IFC in various roles, to highlight how investors can utilize these new instruments in emerging markets and mitigate greenwashing risks
Blended Concessional Finance: The Benefits of Transparency and Access
(International Finance Corporation, Washington, DC, 2021-07) Karlin, Arthur; Sierra-Escalante, Kruskaia
Blended concessional finance, the combination of commercial finance from the private sector and development finance institutions (DFIs) with concessional finance from public and other sources, is increasingly being used by DFIs to support developmentally important projects where normal DFI or commercial finance is not available because of the high risks involved. This can be especially significant in lower-income and fragile and conflict-affected situations (FCS), where risks are high and innovative and pioneering projects can be critical to economic growth, market creation, and poverty reduction. Blended concessional finance is also being used during the COVID-19 pandemic to help sustain struggling businesses hurt by demand and supply shocks, and to rebuild economies toward green, resilient, and inclusive growth. As blended concessional finance involves the use of concessional public or philanthropic1 funds to enhance the viability of private sector projects, strong processes, particularly in the areas of transparency, access, and governance, are necessary to ensure that these resources are used effectively and without distorting markets.
Artificial Intelligence Innovation in Financial Services
(International Finance Corporation, Washington, DC, 2020-06) Biallas, Margarete; O'Neill, Felicity
Artificial intelligence technologies are permeating financial services sectors around the world. The application of these technologies in emerging markets allows financial service providers to further automate their business processes and to leverage new and big data sources to overcome obstacles, including the high cost of serving rural and low-income customers and establishing customer identity and creditworthiness, that prevent the delivery of financial services to many consumers. Realizing financial inclusion benefits through the adoption of artificial intelligence relies on its responsible adoption by firms, on competitive market settings, and on continued investment in the necessary infrastructure.
Deep Tech Solutions for Emerging Markets
(International Finance Corporation, Washington, DC, 2020-11) Nedayvoda, Anastasia; Mockel, Peter; Graf, Lana
Deep tech companies aim to address the world’s biggest challenges. These include providing Internet access to the unconnected, reducing greenhouse gas emissions, significantly increasing productivity gains across industries, and helping to solve many other intractable problems, particularly in emerging market and developing economies. A deep tech company brings transformative technology from the lab to the market, and democratized research infrastructure and increased available funding has led to the rise of deep tech companies globally, including in emerging markets. Yet commercialization is critical to realizing the benefits of deep tech solutions, and deep tech firms often struggle to successfully commercialize their breakthroughs. Strengthening local ecosystems and investing in deep technologies are critical to overcoming this common obstacle. As development finance institutions, institutional investors, and private equity and venture capital investors explore longer-term investment strategies, deep tech commercialization offers not a tech-enabled silver bullet but a holistic approach to investing in technology solutions.
Enabling A Competitive Mobile Sector in Emerging Markets Through the Development of Tower Companies
(International Finance Corporation, Washington, D.C., 2021-06) Houngbonon, Georges Vivien; Rossotto, Carlo Maria; Strusani, Davide
Sharing mobile network infrastructure through specialized companies called towercos is a business model with the potential to accelerate access to quality mobile connectivity for individuals and businesses in emerging markets. A significant number of developing countries have yet to adopt this model, however, and many others continue to struggle with competition issues within their tower markets. This note provides the rationale and policy options for a light regulatory regime that can enable the entry and sustainable development of a dynamic market for towercos in emerging markets. The note also discusses the evolution of the towerco model into small cells and distributed antenna systems, both of which help enable high-speed mobile connectivity technologies like 4G and 5G.
Municipal Broadband Networks: Opportunities, Business Models, Challenges, and Case Studies
(International Finance Corporation, Washington, DC, 2021-11) Houngbonon, Georges V.; Rossotto, Carlo M.; Strusani, Davide
The accelerated use of digital services during the COVID-19 pandemic has highlighted the importance of high-speed Internet access. Yet a large share of adults in emerging markets still live in cities where the availability of high-speed Internet is limited. There is a strong case to be made for municipal broadband networks, which are fully or partially facilitated, built, operated, or financed by local governments, often in partnership with the private sector. There are three basic models for creating and operating these networks, and every network must work in the unique context of the city it will serve. But if they are well implemented, these models can offer digital access to city residents, help close the digital divide, and create opportunities for private sector players in both advanced and emerging markets.
How Artificial Intelligence Can Help Advance Post-Secondary Learning in Emerging Markets
(International Finance Corporation, Washington, DC, 2021-01) Makala, Baloko; Schmitt, Maud; Caballero, Alejandro
Tertiary and vocational learning is widely recognized as critical for all countries’ economic success. While progress has been made toward achieving the fourth United Nations’ (UN) sustainable development goal (SDG 4) by 2030 - ensure inclusive and equitable quality education and promote lifelong learning for all - a 2019 UN report shows that some 750 million adults are functionally illiterate. These statistics illustrate the enormous challenge of adequately preparing the workforce for rapid technological change that will require continual reskilling. Although machines with artificial intelligence are likely to replace millions of workers across the world, artificial intelligence (AI) also has great potential to enable workers to keep up with technological change and remain employable. This note attempts to illustrates how AI can support post-secondary learning across the entire tertiary and vocational education sector in emerging markets.
Creating Housing Markets in Emerging Market Economies
(World Bank, Washington, DC, 2021-10) Innes, Cleo Rose; Casabianca, Brian
At the beginning of the 20th century less than 15 percent of people across the globe lived in cities. This figure has risen to 50 percent (4.4 billion people) today and will exceed 66 percent (7.7 billion) by 2050. There is a significant shortfall of housing to meet the needs of people moving to cities, most of whom have limited resources but strong hopes for better educational and employment opportunities. Direct public provision of housing is not affordable for most national governments, so more than 1.6 billion people will struggle to secure housing by 2025. Addressing this under-provision of housing will require connecting capital with low-income urbanizing populations, including solutions to make the private sector more responsive to the investment opportunities that urbanization presents.