Traditional recurring payment models are still built around fixed schedules and fixed amounts, which often fail to reflect how people are paid or manage their money. Commercial Variable Recurring Payments (cVRPs) are, therefore, emerging as a foundation for the next phase of account-to-account payments, enabling variable amounts, customer-set caps, and explicit consent.

That opportunity is now underpinned by a more practical market framework. Since early June, the UK Payments Initiative (UKPI) has moved commercial VRP into live operation through a multi-lateral agreement, shared rulebook and common commercial model, reducing the need for providers to negotiate bank by bank. Importantly, Wave 1 is deliberately focused on lower-risk, regulated or trusted sectors, including energy, utilities, telecoms, government and regulated financial services. For energy and utilities providers, this makes cVRP less of a future concept and more of an actionable route to give customers greater payment choice while improving collections, consent management and debt prevention.

With energy debt rising, the timing matters. Energy UK forecasts that household energy debt could reach £7bn by the end of the year, up from Ofgem’s reported £4.5bn in Q1. As bills remain under pressure, suppliers need to support debt prevention and reduce the risk of escalation, rather than relying mainly on recovery once arrears have built up.

Where current payment models fall short

Customers typically have three choices for bill payments: direct debit, standard credit or prepayment. Each has strengths, but none fully reflects the financial reality faced by many households.

Direct debit works well for many households, but its rigidity can be a weakness. If a customer has £90 available and a £100 bill is due, the system takes nothing rather than a partial payment. The result can be arrears, stress and disengagement. Although 72% of households use direct debit for energy bills, it can be poorly suited to those with uneven cashflow, including the large proportion of the UK workforce that is not salaried.

Standard credit gives flexibility in theory, because customers pay when billed. In practice, large bills can arrive at the wrong point in a customer’s income cycle, and be deferred or ignored. It also carries a cost premium: households paying this way face around £131 more a year than those paying by direct debit, and many consumers are unaware of that gap. Energy UK estimates that standard credit accounts for around half of debt.

Prepayment can help customers monitor spending, but when funds run out, so does access to energy. That makes it an imperfect substitute for households needing flexibility rather than disconnection risk.

The gap is clear: customers need a flexible, variable payment alternative that reflects modern income patterns while helping providers reduce preventable debt.

Commercial Variable Recurring Payments, and why they present an opportunity

cVRPs offer a more adaptable alternative: consent-based payments with variable amounts, customer-defined caps and greater user control. They can support intelligent flexible payments where timing or amount needs to vary, or allow customers to break payments into smaller amounts that better match their financial situation.

For people with inconsistent monthly income, cVRPs can combine the convenience of direct debit with greater flexibility. Through open banking, they can also underpin secure, permissioned insight to support better timing, clearer prompts and more responsive payment journeys.

Successful cVRP utilisation

cVRPs are a hugely promising payment technology for both customers and businesses but making them work in practice depends on disciplined deployment across four key pillars:

• A simple, trustworthy customer consent journey: Customers must understand what they are agreeing to, their payment limits, when they will be prompted, and how to change or cancel the arrangement. If the journey is unclear, adoption will be weak, and bills are more likely to remain unpaid.
• Smarter prompting and timing: Payments should be requested when they are most manageable for the customer, rather than on a fixed collection date. Open banking can help identify better moments to prompt payment.
• Strong controls, exception handling and service operations: Providers must plan for ignored prompts, disputes, failed or partial payments, and integration with customer service and back-office systems.
• Data-led intervention and vulnerability identification: Payment insight can help providers identify temporary friction, financial distress, or emerging vulnerability earlier, then offer suitable options, or route customers to support more quickly.

When these pillars are in place and underpinned by the benefits of cVRP, intelligent flexible payments can create value for both sides. Customers gain more suitable options, and a stronger sense of control.

Providers can reduce payment failures, improve cashflow, and lower servicing and recovery costs, which are ultimately reflected in consumer bills. Moneyline has reported that customers using this capability for credit repayments experienced a 10% reduction in arrears compared with those using direct debit.

The opportunity is now

As cVRPs move from principle to deployment, they can change how recurring payments are managed. The question is whether organisations, particularly in sectors such as energy with high levels of recurring billing and debt risk, can deploy them in a way that is trusted, operationally resilient and designed around customer need. If they can, the industry has an opportunity to shift from debt recovery to debt prevention in an intelligent and flexible way.

The post Intelligent Flexible Payments: An Innovative Solution to Preventable Debt appeared first on International Finance.

Velmie was founded in 2010 as a software development company, initially delivering solutions across diverse industries including banking and fintech.

Over time, Velmie gained a profound insight into the technological landscape of finance and identified the significant challenges organisations face in meeting customer demands and staying competitive.

Motivated by this understanding, Velmie shifted our focus to developing products specifically designed to empower financial companies to innovate, maintain agility, and prioritise customer-centricity. Since 2018, the company’s dedication has been exclusively centred on fintech.

Slava has been instrumental in shaping Velmie’s growth trajectory, overseeing everything from strategic direction to hands-on involvement in sales, marketing, partnerships, product development, and customer support.

He is passionate about leveraging technology to revolutionise the financial sector, driving innovation and unlocking new opportunities for businesses and consumers alike.

In an exclusive interview with International Finance, Slava Ivashkin, Founder and CEO of Velmie, discusses the company’s digital banking platform, its recent partnership with Unlimit, advancements in the fintech industry, innovative initiatives, and much more.

How does Velmie’s modular cloud-native digital banking platform differentiate itself from traditional banking software solutions?

Our platform differentiates itself from traditional banking software solutions by being designed to serve next-generation products focused on delivering superior user experiences, maximising efficiency, and scaling through expanded partnerships. These principles have been the foundation of our product from the beginning and continue to guide us as we develop new versions of the software.

Additionally, we follow very different policies and procedures for software delivery and configuration. What used to take many months with legacy platforms due to their overall complexity now takes just days or weeks.

This makes Velmie the top choice for institutions and ambitious startups seeking to enter the market quickly and scale their products seamlessly.

Can you provide details about Velmie’s API orchestration layer? How does it facilitate streamlined access to payment services?

Bank-fintech partnerships are cumbersome nowadays, and we provide technology to facilitate this process. As part of our platform offering, the API orchestration technology allows streamlined access to leading banks and other service providers. Through our focused efforts in building and maintaining a robust partner ecosystem, our clients receive tremendous advantages when launching new products with us.

What are some key features of Velmie’s digital banking platform that contribute to its scalability and performance?

Our platform boasts a modular cloud-native architecture, guaranteeing consistent and efficient deployment across diverse environments while offering effortless customisation and scaling. Additionally, our advanced load-balancing and auto-scaling capabilities, combined with an API-first approach, ensure seamless integration and optimal performance, even under varying demands. This makes our platform the ideal choice for financial institutions seeking reliability and scalability.

Can you provide examples of the types of fintech solutions that Velmie has helped to build for established financial institutions?

There are primarily two types of solutions we offer. The first involves digital transformation as companies realise their current tech stack no longer meets their needs and is difficult to maintain. This is a very common problem, and we solve it by offering a solution that allows companies to start using a modern platform without requiring a complete migration, which is the most daunting prospect for any organisation. With us, both platforms can operate and evolve in parallel.
The second type of solution is for new projects we build for startups. Here, you will find a great variety of solutions, including neobanks, Web3 banks, microlending, remittance, savings and investments, private banking, and more.

In what ways does Velmie customise its banking software solutions to align with the unique requirements of ambitious startups?

There are endless customisation possibilities. Our portfolio showcases numerous projects that go beyond the scope of a typical banking app. Unlike many companies that offer customisation services reluctantly, we thrive on helping startups build unique and innovative solutions. We not only love this challenge, but we also excel at it, thanks to our extensive in-house team and vast experience. We reject the notion that one size fits all and instead focus on creating products that are easily customisable. Both our backend and frontend apps feature modularity, allowing us to implement even significant changes with ease and efficiency.

Additionally, we were among the first in our industry to adopt Flutter, a cross-platform mobile technology that simplifies and enhances the process of building new features, running trials, conducting A/B tests, and more—all without compromising security or performance. This approach ensures that we can quickly and effectively tailor our solutions to meet the unique requirements of ambitious startups.

Could you tell our readers about Velmie’s recent partnership with Unlimit?

We’re excited to commence our partnership with Unlimit, as many of our clients select it as their financial services provider. However, they often face challenges in finding a suitable technology partner to implement their product vision with the assistance of Unlimit BaaS.

This is where we step in. Collaborating with Unlimit, we offer a plug-and-play solution that significantly reduces time-to-market and streamlines the process of going live. Instead of attempting to develop apps and back-office systems independently, clients can access a ready-made technology solution that is proven, supported, and easily customisable.

In what ways does Velmie ensure that its platform remains secure and compliant with financial regulations?

At Velmie, we employ proven methods and solutions to ensure our platform remains secure and compliant with financial regulations. One of our key initiatives involves the successful implementation of ISO 27001 policies, which guarantees information security at every level of our operations. This framework allows us to establish and maintain robust security controls, ensuring the confidentiality, integrity, and availability of sensitive data.

Furthermore, we adopt a single-tenant approach within our platform architecture. This approach allows us to isolate each client’s data, providing greater control over its security and minimising the risk of unauthorised access. By maintaining dedicated environments for each client, we can tailor security measures to their specific needs and ensure compliance with regulatory requirements.

How does Velmie stay ahead of the curve in terms of innovation and technological advancements in the fintech industry?

Staying ahead of the curve in innovation and technological advancements is ingrained in our approach. Our clients serve as the catalyst for our continuous innovation journey, as they often push the boundaries with their implementation of highly innovative solutions aimed at disrupting various sectors within financial services.

Thanks to their inspiration and feedback, we’ve expanded our offerings to include a diverse array of cutting-edge technologies such as AI, digital currencies, advanced biometric authentication methods and more.

However, our commitment to innovation extends beyond technology alone. We also recognise the importance of updating policies and processes to support our clients in achieving better efficiency and scalability. By constantly refining our operational frameworks and adapting to evolving regulatory landscapes, we ensure that our clients can leverage our solutions with confidence, knowing they are backed by robust governance and compliance measures.

In essence, our ability to anticipate and embrace emerging trends, coupled with our dedication to enhancing operational effectiveness, positions Velmie as a trusted partner for fintech innovation and advancement in the ever-evolving financial services landscape.

The post Velmie empowers startups with innovative solutions: CEO Slava Ivashkin appeared first on International Finance.

Profit shifting, a tactic employed by businesses with subsidiaries across numerous nations, was used to evade paying all of this money. They record an excessive portion of their profits in tax havens, which are areas with little to no taxes, reported DW.com.

Despite the fact that the profits were earned abroad, this still occurs. But how does profit shifting operate, and what are the winners and losers, and why does it matter?

How does profit shifting work?

Imagine a global corporation with operations in two nations. The majority of the work is completed in a nation with high taxes. However, patents and design blueprints are examples of intellectual property that is owned by a subsidiary in a tax-haven jurisdiction.

For the subsidiary to use the registered properties, payment must be made by the company in the first country where profits are earned. Given its control over both entities, the multinational has the ability to determine the transaction price. Ultimately, it forces the high-tax jurisdictional company to make large payments to the tax-haven subsidiary.

Following the transaction, the tax haven subsidiary’s balance rises while the first company’s profit ledger declines. The multinational corporation can now declare a lower level of profit where taxes are higher and a higher level of profit where taxes are lower.

US footwear giant Nike experienced the above situation recently. According to a leaked document, the company’s local units were required to pay royalties to a subsidiary in Bermuda, where taxes are essentially non-existent, even though the production and sales of sneakers took place in high-tax countries. Multinational giants like Apple and Microsoft were the subject of similar schemes.

Why does it matter?

In 2020, when the COVID-19 pandemic hampered economic activity, the global tax revenue lost to profit shifting was estimated to be USD 200 billion. The year 2019 saw USD 250 billion as that amount.

According to estimates from a group of expert economists who convened at the COP27 in Egypt, the revenue loss in 2020 represents approximately one-fifth of the investments that developing nations require to mitigate the effects of climate change.

The EU Tax Observatory’s data coordinator, Idann Gidron, stated that only big businesses can afford to establish subsidiaries in offshore tax havens and engage in cross-border commerce. In this manner, the largest stakeholders experience a reduced tax burden.

“This creates fiscal injustice because the smaller actors in the economy have to contribute more than the wealthiest,” he said, as reported by the DW News.

Who wins?

Of course, companies that save money on taxes are the main beneficiaries of profit shifting. Their number from the United States is disproportionate.

Multinational corporations based in the US account for about 40% of all global profits.

Tax havens gain from this, but conglomerates also save billions of dollars by shifting profits.

Countries having effective tax rates of less than 15% are deemed tax havens, according to Gidron’s research. Due to the frequent use of legal loopholes to lower taxation levels, it takes into account the rates that are actually applied rather than what is stated on paper.

The research also includes nations where the profits made by multinational corporations are disproportionately large when compared to the total amount of wages paid locally; this suggests that the profits being booked are being transferred from locations where the actual work was completed.

Even in some small nations that have no taxation policies, there is more local economic activity, which is advantageous. Smaller economies may find value in local units, even if they represent very small operations for multinational corporations.

Conversely, larger tax havens can apply their reduced tax rates to the profits that have been shifted. They put money in their pockets that they wouldn’t otherwise have access to, even though the taxes are relatively small.

Where are the tax havens?

“People tend to think that profit shifting is related to countries in the Caribbean, but the tax havens that are attracting most of the profits are actually in Europe,” Gidron said.

Tropical paradises like Panama or Bermuda receive less shifted profits than nations like the Netherlands, Ireland, Switzerland, Luxembourg, and Belgium. In those nations, this leads to budget surpluses. For instance, in 2020, shifted profits accounted for nearly 60% of Ireland’s corporate tax revenue.

Profit shifting resulted in an additional USD 32 billion in taxes for the major tax havens in Europe when combined in 2020. This indicates that they are earning an amount that is roughly equal to the GDP of nations like Senegal, Honduras, or Bosnia, simply from additional taxes.

Another major contributor to tax abuse is crown dependencies and overseas British territories. Profits totalling USD 76 billion were moved to the British Virgin Islands, Bermuda, the Cayman Islands, and Jersey in 2020.

Who loses?

Countries with higher tax rates lose out on the additional revenue tax havens receive. Ultimately, this means that governments around the world have less access to public funds.

Other members of the European Union and other nations in the Organisation for Economic Cooperation and Development (OECD) are the biggest losers. The nation most impacted, Germany, might have received 26% more in corporation taxes in 2020.

But emerging and developing nations are also losing out on sizable profits: in 2020, they will lose about USD 60 billion, down from USD 75 billion in 2019 as a result of COVID-19.

Brazil serves as one example, having lost out on USD 7 billion in possible tax revenue in 2020. With that sum, 4 million more families could have been enrolled in Bolsa Familia, a basic income initiative designed to end poverty.

Is it legal?

Since profit shifting and other tax schemes operate in legal grey areas, Liz Nelson, director of the research and advocacy group Tax Justice Network, claims that the legality of these schemes is frequently determined only in courts of justice.

Multinational corporations are allowed to establish branches abroad and engage in internal trade with one another. However, profit shifting typically occurs in conjunction with the transfer of immaterial goods and services for a reason.

Although it is possible to achieve the same tax reduction goals by deceitfully pricing material goods sales, intangible assets are typically not exchanged on an open market. This is significant because prices paid between a multinational corporation’s units should reflect what is typically seen in transactions by unaffiliated parties, per international regulations.

When there’s no clear indication of what a normal price is, it’s harder for tax authorities to build a case against abusing multinationals.
“Such schemes may not be criminal in a legal sense, but morally they’re wrong. Governments are complicit, and multinationals are complicit. They are creating hardship for people that might be their employees,” Nelson said.

What can be done to solve it?

Notwithstanding initiatives from organisations like the OECD, the amount of profit shifting has remained steady worldwide since 2015, according to the EU Tax Observatory. Although prior policies might have stopped the amount from rising, the researchers point out that this does not imply that they had no impact at all. They do concede, though, that more needs to be done.

About 140 nations came to an agreement in 2021 to impose a 15% global minimum corporation tax rate. However, the researchers from the EU Tax Observatory assert that because of loopholes that would let some nations continue to tax businesses at lower rates, the tax agreement is insufficient.

Rather, they are suggesting eliminating all tax breaks and raising the tax bracket to 20%. There could be an additional USD 250 billion in tax revenue collected globally annually as a result, they claim.

The post Tax haven: Knowing the winners & losers appeared first on International Finance.

Previously, he was a Director at AFEX for 10 years, one of the world’s largest FX providers. There he led the East Coast region, doubling revenues annually. His team specialised in corporate, institutional and HNW clients across industries like alternatives.

Under Ashley’s leadership, Deaglo aims to transform the cross-border transaction experience through AI and machine learning.

In his interview with the International Finance Magazine, Deaglo CEO Ashley Groves delves into a myriad of topics, offering profound insights on sustainable and ESG investments, the transformative impact of technology-driven platforms, the dynamics of cross-border investments, the untapped potential of emerging markets, and much more.

Q) How do you perceive the impact of the global awareness and demand for ethical investment practices on the future of the investment industry, particularly with the pivot towards sustainable and ESG investments?

A) Ethical investing is crucial for the industry’s future. Investors increasingly demand principles-based allocation. This motivates asset managers to integrate ESG factors. Sustainable investing will likely be the norm rather than niche and I believe that breaking out ESG to focus on each component individually would result in more optimal outcomes

Q) With the establishment of a $100 million VC fund for sustainable fashion by Hugo Boss, how do you see such initiatives shaping the investment landscape in the coming years, and what role can corporate entities play in driving sustainable investments?

A) Corporate sustainability funds pioneer positive change. This move by Hugo Boss exemplifies the power that private capital has to transform entire supply chains. As stakeholders pressure the more unethical brands who have been profiting most, and therefore see corporations as the primary catalysts for ethical production through investment vehicles like these.

Q) The past year witnessed a decline in cross-border investments due to global tensions. How do you anticipate geopolitical factors influencing the investment landscape in 2024, and what strategies can investors employ to navigate these challenges?

A) Geopolitical uncertainty persists, although tentative easing has buoyed sentiment. Pragmatic exposure adjustment, selective hedging, and risk-balancing strategies can buffer volatility. But for long-term investors, momentary tensions seldom impair a thesis. I remain bullish on cross-border capital flows.

Q) The trend towards technology-driven investment platforms is expected to continue. In what ways do you think these platforms will reshape the investor experience, and what potential risks or concerns should investors be mindful of in adopting such technologies?

A) Technology platforms enhance transparency, access, and reporting – democratising investing. We are betting on a shift towards AI-powered investment platforms that will profoundly reshape user experiences. Users will have the ability to get the insights they need and ensure they are valuable.

As algorithms provide advice and execute trades, ensuring unbiased high-quality data flows is crucial. There will be premiums associated with guarantors who audit and validate the purity of data used in financial models. Similarly, certifying training protocols will ensure recommendation engines align with fiduciary responsibilities.

Users should scrutinise these safeguards rather than solely seeking frictionless experiences. Otherwise, this new AI-driven era risks compromising oversight and accountability if not developed deliberately with principled machine learning approaches.

Q) Brazil has continued to attract investor interest. From your perspective, what factors contribute to Brazil’s appeal, and do you foresee any specific challenges or opportunities for investors considering the Brazilian market in 2024?

A) Brazil boasts attractive fundamentals – consumer growth, commodities, and energy innovation. They are also a young, humble and highly educated population that is consistently online and quick to embrace new technology. PIX banking and Nubank have become the new standard in digital banking.

The currency has also performed well against the USD and remained relatively stable. Interest rates also seem to be flattening out and for the first time, hedging costs will not be a limiting factor to investors.

I still see a distinct lack of quality service providers supporting the local businesses and investment managers.

Q) Other countries like Colombia, Chile, and India are expected to attract Foreign Direct Investment (FDI) due to improvements in their startup environment and banking infrastructure. How can investors identify and capitalise on emerging opportunities in these regions, and what due diligence measures are crucial in evaluating such markets?

A) Emerging markets offer tremendous upside. We implore Investors to stress test growth assumptions via scenario analysis. Examining financial inclusion trends, banking stability and tech ecosystem vitality in my opinion reveals standouts. But anti-bribery, IP, and FX protections also require a lot of additional due diligence.

Q) Given the historical volatility of crypto and digital assets, how do you assess the renewed interest in these areas within the investment industry, and what precautions or strategies do you recommend for investors navigating the crypto space in 2024?

A) Crypto retains immense potential on a risk/reward basis. I have always been a huge fan of blockchain and smart contract technology and I see multiple use cases within Deaglo such as multi-currency tokens for cross-border escrow. But sudden liquidity evaporation remains a key vulnerability in strained markets. Portfolio safeguards like exposure ceilings, hedge overlays, and managed drawdowns help temper this asset class’s risk but I believe that until Central banks adopt their own digital currencies and allow holders to move freely between tokens and cash we will be at risk of more boom or bust cycles.

Q) As the CEO and founder of Deaglo, what key takeaways from 2023 do you find most significant for investors, and how can these insights be applied to make informed investment decisions in 2024?

A) The year 2023 proved the resilience of innovation and global collaboration despite mounting uncertainties. For investors, embracing diversification and focusing on tangible income streams/adoptions create an all-weather portfolio to compound gains. Our goal is to follow FDI (Foreign Direct Investment) and we believe that there are a number of emerging markets that are poised for incredible growth. We want to make sure that we are there to allow investors to invest and divest as safely as possible.

Q) With the shift towards personalised and efficient investment solutions through technology-driven platforms, how can traditional investment firms adapt to stay competitive, and what role do you see for collaboration between traditional and tech-driven players in the industry?

A) Platformization is inexorable – those who harness it first will lead markets. Incumbents are already starting to strategically integrate digital capabilities through partnerships with nimble innovative technology firms. Combining institutional and regulatory expertise, a large client base with software scalability and analytics will ultimately create superior user experiences and more profitable businesses.

Q) Looking ahead to 2024, what advice would you give to individual investors and institutional players to thrive in the evolving global investment landscape, considering the anticipated shifts towards sustainability, technology-driven platforms, and emerging markets?

A) As we approach 2024, my advice for both individual investors and institutional players navigating the evolving global investment landscape is multifaceted. To thrive in the face of anticipated shifts towards sustainability, technology-driven platforms, and emerging markets, it is crucial to construct globally diversified portfolios grounded in solid principles. Prioritising risk-balancing is essential to mitigate volatility, and staying informed about policy impacts and megatrends ensures a proactive response to changing dynamics. Adaptability is key, particularly when venturing into new markets or regions, allowing for flexibility and responsiveness. Moreover, the swift but cautious adoption and embrace of new technologies will enhance efficiency and competitiveness while maintaining a focus on safety.

The post Emerging markets offer tremendous upside: Deaglo CEO Ashley Groves appeared first on International Finance.

Soon after, the cryptocurrency market led by Bitcoin made some investors wealthier beyond their wildest dreams. Then came NFTs and the digital art scene pioneered by Cyberpunk collectibles. There is always a new hype, a new cash cow, and the Metaverse is likely to be the next big disruptor. The money people will make on the virtual reality platform will make all the other gains that preceded it look like chump change.

The Metaverse has been receiving a lot of attention lately from the press. Everyone is hailing it for its innovativeness and glamor. There are stories of people buying virtual land, exhibiting their art, attending concerts, getting married, and even attending VR church. But what does this all mean, or is this empty hype?

The Metaverse, they say, is the future of the internet. It will undoubtedly be a pivotal part of the next phase of the internet- Web 3.0. It isn’t a new technology per se, but how modern technology like VR, crypto, and NFTs are combined to create a new world and user experience. The Metaverse is a programmed augmented reality where one can interact, trade, and build with users worldwide.

From FB to Meta
You might be fascinated by all these developments but still wondering how this will translate to wealth and appreciation. While Elon Musk, Jeff Bezos, Richard Branson, and other billionaires were trying to explore space and the planets in the solar system, Mark Zuckerberg had a peculiar idea. He changed his company name to Meta and made his billion-dollar product, Facebook, into a subsidiary.

Many thought it was a risky move to alter the name of the most extensive suite of social media platforms. But Zuckerberg realizes the potential of emerging technologies like virtual reality and artificial intelligence. He knows that the likelihood of humankind inhabiting Mars in the next 10-20 years is very low, but the chances of humanity occupying a simulated reality are much higher. The technology for the former is still not in sight and would be economically unfeasible in the short term.

Zuckerberg said, “I am not sure if I would want to go into space; I am much more interested in virtual reality, which would let anyone teleport anywhere in the world.”

When virtual realities become a thing, it would likely see Meta leading the way, and Meta stocks are likely to skyrocket.

Companies to keep an eye on
Another company trying to tap into the goldmine of virtual reality is Microsoft. It recently bought video game developers like Activision Blizzard (a company with more than 400 million monthly users). A powerful game developer could build a very user-friendly and addictive VR platform. Microsoft has positioned itself to profit from any advancements in virtual reality or the Metaverse. Investing in Microsoft stocks would therefore be a brilliant idea.

Other platforms that are exploring the possibilities include Unity Software which has a platform that lets developers make, run and profit on real-time content, including PCs, mobiles, and virtual reality. Nvidia, known for its graphics cards used in PCs, mobiles, and gaming consoles, is developing the technology behind Metaverse called the Omniverse. As per Marketwatch.com, the company already has an actual product and strategy more quickly monetized than other competitor products.

Cloudflare is among the top website security, speed, and content delivery platforms. The company creates routing, firewalls, load balancing, and traffic optimization software. They recently developed the Distributed Web Gateway project built to support new distributed web tech. It will make Web 3.0 and Metaverse applications easy to use.

Roblox gained tremendously during the covid-19 lockdowns when much of the world was in turmoil. It was nicknamed “Pandemic Darling.” Most of the company’s revenue came from in-game currency sales called ‘Robux.’ Even if Robux stocks are cooling down now, it is best to monitor its growth as it is likely to bounce back.

And then there is Matterport Inc. Matterport offers a 3D data platform that lets you construct, market, and manage offices, hotels, shops, factories, and homes.

Matterport digitizes physical assets and translates the real world into a virtual world. It creates “digital twins” of the real world. The whole idea of the Metaverse is to create a virtual copy of the physical world that one can inhabit virtually.

Matterport has 6.2 million spaces under management which is 100x the size of the rest of the market. Matterport has a $240 billion worth of addressable market focused on such applications. The company is noteworthy for its partnership with Meta Platforms to make 1000 digital twins available for noncommercial, academic uses.

CEO RJ Pittman of Matterport said that the company’s secret is turning buildings into data and creating digital copies of real-world locations. He said it is the datafication of the real world. Matterport was at $14 in July 2021 and rose to $37 in December 2021. However, on January 21, 2022, it was worth $10.33. The selloff during this year’s market panic has been extreme. Matterport is a product worth a lot more than the current asking price.

The Metaverse is coming sooner or later, and Matterport will play a huge role in its architecture. It is still very early to enter now, and it is likely to grow 10x or even 100x and more.

In the next 20 years, virtual reality will come into existence. Humans are likely to spend most of their time on simulations using advanced VR headsets, trade using cryptocurrencies, and own digital and physical properties as NFTs. The pioneers in the Metaverse will make wealth from .coms and bitcoin seem insignificant. Would you be among them?

Other ways to capitalize on the Metaverse
Buying stocks in companies that help build the Metaverse or other virtual reality platforms isn’t the only way to make a killing. Blockchain and augmented reality technologies have opened up a whole new world with infinite possibilities. Here are a few long term investments that could make you a millionaire:

Buy virtual real estate:

There is a race for land happening in the world today. Perhaps, comparable to the first time colonists came to settle in the Americas. However, the land in question now is virtual. People buy land as NFTs on blockchain-based games like My Neighbor Alice, Decentraland, Sandbox, and Metaverse. In December 2021, an anonymous NFT collector spent $450,000 to buy virtual land near the celebrity rapper Snoop Dogg’s house inside the Metaverse. The rapper is building his virtual world inside the Metaverse. The land could appreciate in the coming years, with speculators claiming it will be worth 100 times in the future. The land could be rented out later for a fixed income or even used as a venue for exhibitions and shows.

Digital art as NFTs

NFTs, or non-fungible tokens, have been talked about frequently in the financial markets lately. The NFT digital art Cryptopunks were given away for free in 2017. The most sought-after NFT in the 10,000-piece collectible is worth $23 million today. An entire generation of artists has joined the NFT movement. There are many exchanges like The Opensea where art is sold for cryptocurrencies and held in hopes it will appreciate later. NFTs have become a storehouse of wealth just like paintings of Davinci, Modigliani, or Van Gogh are today.

In-game Cryptocurrencies and articles

Playing video games was once considered a childish pastime. No longer is that the case, as many video games built on blockchain technology allow users to accrue some wealth. A new play-to-earn phenomenon enables players to earn through in-game cryptocurrency rewards and ownership of items, characters, and other in-game assets.

The story of Axie Infinity is one that was ever present during the Pandemic. Players in many countries like Vietnam, Bangladesh, and even Venezuela quit their jobs to play Axie Infinity, a play-to-earn game that could help players raise $1200 a month. It’s an amount that can afford a spectacular lifestyle in developing countries like these. During the Venezuelan economic crisis, such play-to-earn games were the primary source of income for some of the country’s youth. Other games include Splinterlands and industry-leader Crypto Kitties.

There are also other ways to make money, such as through prediction markets, fantasy sports, PVP multiplayer games, etc.

The post Metaverse: the 21st-century gold rush appeared first on International Finance.

In contrast, FDI in Latin America dropped by 37 percent during the same period. The European Union also suffered a 71 percent drop to an estimated $110 billion from $373 billion in 2019. Among the EU members, 17 of them registered a drop in FDI during the period. In the US, FDI inflows dropped 49 percent from over $250 billion in 2019 to $134 billion in 2020. According to UNCTAD, global FDI fell from $1.5 trillion in 2019 to just under $860 billion last year, which is a 40 percent decline. When it comes to Southeast Asia, the region registered a 31 percent contraction led by a 68 percent contraction in Malaysia, 50 percent in Thailand, 37 percent in Singapore, 24 percent in Indonesia, and ten percent in Vietnam.

UNCTAD said in its report, “FDI inflows to developed countries fell drastically by 69 percent to values last seen almost 25 years ago. Of the global decline of $630 billion, almost 80 percent was accounted for by developed economies. At an estimated $229 billion, inflows in developed economies were only one third of the low point after the global financial crisis of 2009. Multinational enterprises (MNEs) significantly reduced new equity investments. In combination with lower M&A activity this resulted in a market decline in the equity component of FDI to near zero. Intra-company loans turned negative (-$134 billion) as parent firms withdrew or were paid back loans from their affiliates, strengthening their balance at home. Contrary to earlier expectations and despite significantly lower profit levels, reinvested earnings in foreign affiliates remained relatively stable, declining by only 6 percent.”

China becomes the biggest recipient of FDI in 2020
Last year, China was the largest recipient of foreign direct investment in 2020 despite the coronavirus pandemic, which originated in the Chinese city of Wuhan in 2019. China attracted foreign direct investments worth $163 billion in 2020. The US, on the other hand, attracted FDI inflows of $134 billion only. In the previous year, the US registered $251 billion in inflows, while the mainland had received $140 billion. However, in 2020 China dethroned the US to take the top spot.

According to data compiled by the Organisation for Economic Cooperation and Development, the total stock of foreign investment remains much larger in the US when compared to China. It also must be noted that China recorded a decline in FDI inflows in the first quarter of 2020, however, growth soon picked up during the remaining three quarters of the year. According to data released by China’s Commerce Ministry, FDI inflows contracted by 11 percent in the first quarter, but it grew by 8.4 percent and 20 percent in the second and third quarter respectively.

When FDI in the US peaked in 2016 at $472 billion, China registered FDI inflows of $134 billion. Since then, investment in China has continued to rise. In contrast, investment in the US has fallen each year since then. Even more noteworthy, FDI flows into China’s IT services leaped by over 28 percent in 2020. The service sector in China registered the largest share of FDI in the same year. China’s cross-border merger & acquisition activity jumped by 54 percent during the period, mostly in China’s IT and pharma sectors. Foreign investment in China’s high-tech industries was also up by more than ten percent last year. The Netherlands and Britain increased their investment in China by 48 percent and 31 percent respectively during the period.

Nigel Green, the chief executive of deVere Group said, “China’s benchmark index the CSI 300, which tracks shares on the Shanghai and Shenzhen stock exchanges, jumped nearly two percent as investors around the world rush for exposure to the People’s Republic’s economic recovery from the Covid pandemic. These fresh impressive gains for Chinese equities come after an incredible year in 2020 in which the index added more than 27 percent.

“This trend of piling into Chinese stocks can be expected to continue throughout 2021 as investors seek growth. China’s rebound is quite remarkable, compared to other major economies, many of which are once again rolling out stricter restrictions to stop the spread of Covid amid a tsunami of new cases. The country has just reported increased industrial output and retail sales towards the end of 2020, bolstering expectations of further robust growth in 2021, adding fuel to the nation’s stock markets and currency as well as those economies that get a boost from domestic spending within China. Of course, all of this will not go unnoticed by investors looking for yield.

“But as 2020 showed us with perhaps too much clarity, things can change quickly and so-called ‘certainties’ can shift overnight. Therefore, as ever, it is essential that investors have a truly diversified portfolio. This includes across geographical regions, assets classes, sectors and currencies. A good fund manager that can secure global exposure and actively seek out opportunities in Asia, especially in China, will best position investors to reap rewards in 2021. China, but also Asia in general, has massive potential and will likely outperform the rest of the world in 2021. However, investors must not get giddy and forget about the importance of diversification – the investor’s best tool to capitalise on opportunities and mitigate risks.”

Building on an impressive performance in 2020, FDI into China continued to increase in January 2021. According to the Chinese Commerce Ministry, FDIs in January increased by 4.6 percent year-on-year to reach $14.2 billion. Data released by the ministry further revealed that foreign investment in the services industry amounted to ¥68.46 billion in January, which is an increase of around 11 percent year-on-year. The sector alone accounted for 74.7 percent of the country’s total FDI in January. Other sectors that also did well are wholesale and retail trade. These sectors saw FDI climb 27.2 percent year-on-year during the period. Also, the accommodation and catering industries witnessed a 71.5 percent increase in foreign investment.

According to the Ministry of Commerce, the services sector in China registered 11 percent rise in FDI amounting to $10.1 billion. Similar to January 2021, the services sector also attracted the largest share of FDI in 2020 as well. Last year, FDI in China’s service sector rose by 13.9 percent yearly to $120 billion and accounted for a record portion of overall FDI.

Global FDI is moving into Asia
Despite the pandemic and economic uncertainties, Asia has attracted the highest number of FDI last year, helped by China’s strong performance. Along with China, India too has posted positive FDI inflow growth. In India, the growth was driven by its fast growing service sector which has attracted a large list of foreign investors. Surging levels of FDI were also reported in the financial and science-based services and IT sectors. This is a result of large US multinationals entering the Indian sub-continent to tap into the potential of India’s vast domestic market as well as counter China in this aspect.

Asia is currently leading the global economy with FDI inflows either picking up or at least showing signs of a potential rise from last year’s negative growth patterns. In contrast, the European Union suffered a 71 percent drop in FDI last year. The UK and Italy, which have been hit hard by the pandemic and have recorded high mortality rates, attracted no new investments. Germany, which is the largest economy in Europe, saw a 61 percent drop in FDI inflows as well in 2020. Similarly, FDI inflows in Latin America also declined by 37 percent during the same period.

When it comes to the Association of Southeast Asian Nations (ASEAN) countries, their FDI inflows were largely negative last year, however, several of its member nations are getting back on track in attracting growing levels of FDI. This is attributed to the recently-agreed regional trade agreements. Leaders from ten Southeast Asian countries, as well as South Korea, China, Japan, Australia and New Zealand have signed a mammoth trade agreement that will define trade and commerce in the Asia Pacific (Apac) region for decades. Called the Regional Comprehensive Economic Partnership (RCEP), it’s a trade agreement signed by Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand, and Vietnam. It is noteworthy, that even though India was part of the initial negotiations, they decided to back out after growing pressure from the opposition and other stakeholders back home.

ASEAN’s FDI inflows slowdown
While China’s FDI inflow climbed four percent last year, the ten-member ASEAN regional bloc saw FDI declined by 31 percent, which amounts to $107 billion for 2020. According to UNCTAD’s Investment Trends Monitor, ASEAN saw growth of around $70 billion in greenfield investments last year. Interestingly, in 2019, ASEAN registered a decline of 14 percent when it came to greenfield investments.

The levels of FDI inflows do vary from country to country. Some countries did register a far greater drop in FDI inflow last year when compared to other ASEAN members. Vietnam too registered an FDI inflows drop of around ten percent in 2020 to around $20 billion for the year, when compared to its FDI inflows in 2019.

According to UNCTAD, Singapore’s FDI inflows plunged by 37 percent last year amounting to $58 billion. Despite a plunge, which is similar to levels during the financial crisis of 2009, Singapore still held pole position as ASEAN’s largest recipient of foreign investment in 2020.

Indonesia also registered a drop in FDI inflows by 24 percent in 2020, according to Indonesia’s Investment Coordinating Board. FDI inflow in Indonesia last year amounted to $18 billion. This is mainly because of the widespread lockdown measures introduced to curb the spread of the virus during the first half of last year. FDI inflows in Indonesia have picked up since then, rising by a yearly 1.1 percent during the third quarter of 2020. FDI inflows registered strong growth in the fourth quarter as well, rising by nearly 5.5 percent. A major chunk of the funds came from investors in China and Singapore. The sectors that attracted these FDI were telecoms, transportation, warehousing and utilities.

The UNCTAD report further revealed that Thailand and Malaysia were especially negatively impacted when it came to FDI. However, Malaysia’s Department of Statistics argues that by taking account of an alternative measure, in the form of ‘gross FDI inflows’, then for the first nine months of 2020, investments into Malaysia were up by 5.8 percent on the previous year, amounting to $26.8 billion in that period. Malaysia’s FDI inflow did register growth in the fourth quarter reaching $1.5 billion as a result of the lifting of its restrictions and lockdown measures previously introduced. This proves that Malaysia continues to be a major investment destination and attract global investors. Most of the foreign investments came into the country from its neighbouring countries such as Thailand, Singapore and Japan. A major chunk of the investments went to the manufacturing, finance and retail trading sectors.

One country that did well compared to the other ASEAN members, is the Philippines. The country registered an increase in inward direct investment of 29 percent to $6.4 billion during the period. The Philippines’ impressive performance was the result of surging net equity capital investments which rose by 48.6 percent during the first 11 months of 2020. Sectors such as manufacturing, banking and insurance, and property attracted the major portions of the funds, which came from investors in countries such as Japan, Singapore, the Netherlands, and the US.

India to emerge as China’s potential challenger
Similar to China, India also registered high FDI records in 2020. According to India’s Ministry of Commerce and Industry, during the second and third quarter of 2020, FDI inflows increased by $58.4 billion despite India recording the highest number of Covid-19 cases during the period. This is a 22 percent increase in FDI inflow when compared to the same period in 2019. It is the highest ever recorded during the first eight months of a financial year. The ministry further revealed that around $43.8 billion were invested as equity capital alone. India and China were the only two countries that registered FDI growth last year.

During the month of November, India recorded a growth of 81 percent year-on-year, which stood at $10.2 billion. Around $7.6 billion went to sectors such as banking, finance, insurance, R&D, testing and analysis and outsourcing, while around $7.4 billion went towards computer hardware and software. Other sectors that also benefited from strong FDI include retail and wholesale trade, telecoms, tourism and automobile production. According to the UNCTAD report, India is attracting record numbers of deals in IT consulting and digital sectors, including e-commerce platforms, data processing services and digital payments.

A major portion of FDI inflows in India came from Singapore. It contributed around $8.3 billion to India’s FDI inflow in 2020. Singapore was followed by the US in second, which overtook Mauritius, investments totaling $7.12 billion. US technology giants buying up Indian tech ventures helped the US topple Mauritius and take the second spot. The US was also helped by former US President Donald Trump’s relationship with Indian Prime Minister Narendra Modi.

Other countries that also made significant contributions include the UK with $1.35 billion FDI and France with $1.13 billion. Also, holding company jurisdictions, notably the Cayman Islands and the Netherlands, contributed $2.1 billion and $1.5 billion in FDI inflow respectively. India was helped by FDI policy reforms made by the government to boost FDI amid a global recession. Other factors that also helped India include investment facilitation and ease of doing business. Like China, India also has a big service sector that attracts foreign investors at a very large scale. This could possibly mean that India could be China’s worthy competitor when it comes to competing for FDI, and not the US. The very fact that the US’s FDI inflows dropped by 49 percent in 2020 and has been declining in the last couple of years, whereas India’s FDI inflows grew 22 percent year-on-year during the first eight months of the financial year proves it.

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The coronavirus pandemic is not the only factor that has pushed governments all around the world to make advancements in green agendas and continue their prior efforts in such developments. It was on July 2, 2019, when the UK government published a report known as the Green Finance Strategy, with a subtitle Transforming Finance for a Greener Future to outline how the financial sector can drive progress in relation to climate change and help the UK achieve its net-zero emissions target. 

The UK is an outstanding example of green finance

Many governments including the UK have included green recovery measures in their response packages through grants, loans and tax reliefs. These are aimed at developing green transport, circular economy and clean energy research and development. The UK government has also unveiled the Green Homes Grant, which is a £20 billion scheme allowing homeowners and landlords to access funding to upgrade the energy efficiency of their homes. The country is leading the change to build a sustainable financial future. The government is actively involved in encouraging more green finance in the country and internationally, through various measures—such as green financing, addressing market barriers, building capability and developing innovative approaches to strengthen the financial landscape to tackle climate change.

The City of London Corporation and the government are keen to the country’s capabilities on this front and transform it into a global hub for green finance. Now significant upgrades in technology, policies and business models, in addition to the increasing public awareness in the country’s transition to a green growth pathway. Besides the UK, other countries like China have also recorded significant reductions in carbon intensity last year. 

Flows of private finance into sustainable projects

The country already has a proud record in tackling climate change and transforming its financial landscape is imperative to its vision. Its Green Finance Strategy largely supports the economy policy for sustained growth and the delivery of modern industrial strategy. But it needs to be combined with specific actions to speed up the flows of private finance into key environmental sectors at home and overseas. 

In the last decade, there has been more than £92 billion invested in the country’s clean energy, with specific interventions to speed up the process. For example, the Green Investment Bank has been working along with more than 100 private sector and third-party investment partners. In fact, the bank alone had committed to £3.4 billion of its own capital to 100 projects. These projects were estimated to have a total value of more than £12 billion.

New technologies for financial viability 

In parallel to these attitudes and policy shifts, technological advances continue to accelerate the country’s efforts in green finance. This not only relates to the emergence of new technologies, but it also means scalability and financial viability of recent innovations to make them more accessible to the average consumer. With the rise in the penetration of electric and hybrid vehicles, or the wide scale adoption of smart home technology related to entertainment, social interaction, convenience or security, there is no reason to believe that the green technology trajectory will be any different. 

We ultimately believe that this shift in mindset from awareness and understanding to action coupled with the current macro-conditions mean that a green future is not only desirable but is inevitable. I founded Tandem with an intent of building ‘The Good Bank’ that puts customers’ needs first and takes the stress out of money management.

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However, a wave of new fintechs, neobanks and even telecom operators are creating their own digital lending systems to better serve SMBs. But how can they ensure they overcome the existing challenges? And with so many players contending for banking licenses, who will win the race to support SMB lending?

Data is key to build trust
Small businesses in Southeast Asia face the same struggle when accessing credit: it is crucial for them to have a credit history to prove their creditworthiness. It’s a vicious cycle. Financial institutions are cautious and have strict risk policies which do not match the reality and needs of this vibrant but potentially underserved sector.

Data is the missing link. Traditionally, SMBs would need to provide a multitude of data for the bank to score their creditworthiness and underwrite a loan—but this is often not available in the same way as it is for larger businesses.

Recognising this challenge, new entrants into the market have experimented with alternative ways of scoring businesses using different types of data. In Southeast Asia, Mobile Network Operators (MNOs) have access to vast amounts of data on customers compared to banks. Alternative data such as phone airtime consumption, bill payments and other customer behaviours are being used where traditional credit scoring data points are not available.
Other players are similarly shifting toward community or behaviour-based data to assess businesses using the data that is available. Advancements in data science and machine learning are giving new players a predictive power to assess the ability to repay a loan.
Neobanks reinvent SMB lending
Among those looking to overhaul current SMB lending practices are neobanks. Typically birthed out of the idea of challenging the current processes of the incumbents, neobanks are not bounded by legacy systems, or burdened by branch networks. New neobanks like TONIK in the Philippines boast lower operating costs than the incumbents, meaning they can generally offer lower rates on business loans.
Business owners are open to a purely digital proposition. However, it is simply not enough to provide digital channels to access financial services. Similarly, neobanks will need to find creative ways to assess businesses looking for a loan.

In addition to neobanks entering the Asian market, there are several non-banks looking to reinvent themselves in this sector. Many are seeking to acquire a digital banking license including Grab in Singapore and Gojek in Indonesia increasing competitiveness; both companies have started out as ride-hailing service providers in their respective markets.

With that, both of them have recognised the opportunity and are now repositioning themselves as neobanks to start provisioning loans to underserved businesses. Once again, the common factor here is data. Grab and Gojek already have large volumes of data on their customers and are using that knowledge to effectively boost lending to small businesses.

Local market offers meaningful insights
Understanding the intricacies of the local market is essential if neobanks and other new players are to get SMB lending right. They need to look at what factors make most sense when underwriting a small business loan. They need to sync with what data is available and the likelihood of the repayment based on the local circumstances.

Where traditional banks have gone wrong is mandating small businesses to comply with pre-existing policies and rigid systems. New players must understand the challenge first and then build a solution. They must consider many alternative models and data sources if they hope to meet the needs of small businesses across Southeast Asia. After all, neobanks have made a great start, but the race is far from over—and it requires them to build from a true understanding of the local market.

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An Investment Management Agreement is expected to be finalised by the end of this month between both parties. KKV Investment Management is a subsidiary of Kvika Securities. Launched in 2014, SQN Asset Finance Income Fund is an alternative lending vehicle focused on small and medium enterprises in the country.

Gunnar Sigurðsson, Managing Director of Kvika Securities, told the media, “We’re delighted to reach this milestone and expect to finalise an Investment Management Agreement by the end of May. The appointment of KKV to manage the fund is a significant step forward in Kvika’s UK asset management operation, which is integral to Kvika’s long-term strategy in Britain. The agreement will increase assets under management in the UK sixfold while also quadrupling our headcount. We’re fortunate to be joined by a skilled and experienced team of investment management professionals, led by Dawn and Ariel, which we expect will lay the foundations for significant growth opportunities in the coming years, particularly in the alternative credit and fixed income space, which is at the core of KKV’s offering. We are anticipating a rich seam of interest in alternative credit products in the coming years, due to their ability to provide attractive risk-adjusted returns in the current global environment of depressed yields.”

The subsidiary is authorised and regulated by the Financial Conduct Authority.

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In developed and emerging markets, green bonds have been receiving significant attention from policy makers, issuers, and investors. Green bonds or climate bonds are bonds earmarked to encourage sustainability and to support climate-related or other special environmental projects. Green bonds finance projects aimed sustainable water management, the deployment of environment-friendly technologies, increasing energy efficiency, pollution control, the protection of aquatic and terrestrial ecosystems, clean transportation, sustainable agriculture, and fisheries and forestry.

For example, recently the European Union (EU) took significant steps in setting up an EU Green Bond Standard. Given that emerging markets nations are bearing the brunt of the impact of climate change, the emerging markets should be the hub of green bond activity. However, the mobilisation in emerging markets has not taken off at the same level as in other markets, and investors are not very aware of relevant investment opportunities.

International Finance Corporation of the World Bank (IFC) offers a holistic approach to the development of green bonds as an issuer, investor, provider of advisory services, technical assistance and risk mitigation instruments to create and develop the green bond market. Jean Marie Masse chief investment officer, financial institutions, IFC speaks exclusively to International Finance about the IFC’s active role in promoting the green bond market and the challenges and solutions for promoting green bonds in emerging markets.

How do green bonds fit into IFC’s climate strategy?

In accordance with its Climate Implementation Plan, IFC is now helping clients to issue their own green bonds. There is also opportunity to create new aggregation models through IFC’s work with financial institutions, including green bonds. IFC will also support green bond issuances of its manufacturing, agribusiness, and commercial services clients, targeting those who have made public climate-related commitments.

This support can be in the form of direct investment in green bonds or through IFC’s partial credit guarantees that can accompany a bond, which, among other benefits to the issuer, will guarantee payment to bondholders up to a specified amount. This provides emerging market clients with access to a wider investor base and paves the way for future issuances without enhancement.

While green bonds can support a range of climate-related activities, they are an ideal aggregation tool to finance IFC clients’ energy efficiency improvements. As one of the leading issuers of green bonds, IFC and the World Bank have helped to develop the standards for green bonds issuance. IFC works with financial institutions to issue their own green bonds, enabling banks to further develop green financing.

IFC offers a holistic approach to the development of green bonds: we are an issuer, investor, provider of advisory services, technical assistance and risk mitigation instruments to create and develop the green bond market.

Since launching the Green Bond Programme in 2010, IFC remains one of the world’s most prolific issuers of green bonds. In 2013, IFC was the first issuer to list a billion-dollar green bond in the global market. The largest green bond ever issued at the time. This was heralded as a landmark transaction that proved green bonds as a mainstream product. To date, IFC has issued around 150 green bonds in 16 currencies amounting to almost $10 billion.

IFC has played a key role in developing the market infrastructure needed to promote the product in a number of ways such as the establishment of the Green Bond Principles (GBP) for which IFC has served as a member of the Executive Committee since its inception. The GBP are the most accepted guidelines for the issuance and reporting of green bonds globally. In addition, on impact reporting, IFC was instrumental in co-drafting the initial Harmonised Framework for Impact Reporting, a template for issuers to use as a basis for their impact reporting. This document remains the basis for most public issuer reporting.

IFC channels investments through financial institutions such as commercial banks to support climate-related credit lines. Since 2005 IFC has worked with more than 180 institutions in 61 countries through 219 climate projects, providing $9.8 billion in long-term financing from its own-account and in core mobilisation.

Over the last two years, IFC has helped nine banks and non-bank financial institutions issue green bonds worth $1 billion – all of which were first-time green bond issuances.

As a mobiliser of green bonds, IFC is taking the lead in deploying innovative ways to mobilise private capital to fill the financing gap required to tackle climate change. For example, the Amundi Planet EGO Fund, the world’s largest green bond fund in emerging markets, was launched in February 2018.

The fund, managed by Amundi, will ultimately invest in emerging market green bonds issued by financial institutions. It was closed at $1.42 billion, with a $256 million investments from IFC, and is expected to deploy $2 billion in green bonds over its seven-year investment period. The fund aims to increase the capacity of emerging market banks to fund climate-smart investments and increase the scale and pace of climate finance in emerging markets.

Through the IFC-facilitated Sustainable Banking Network (SBN), IFC shares green bond expertise and supports financial sector regulators and industry associations in emerging markets to develop green bond frameworks and catalyse local issuances. Established in 2012, SBN represents 36 countries and over $43 trillion in banking assets in emerging markets.

IFC also supports capital market regulators in the development of national green bond frameworks, and then socialises these funding instruments with other players (notably issuers, but also investors, second opinion providers, auditors) to support first green bond issuances in regional markets. This work in turn facilitates the development of green bonds as a new funding instrument for the financing of climate transactions, including renewable energy infrastructure, energy efficiency measures, green buildings and climate smart agriculture, thus expanding the range of available funding sources for climate projects.

In addition, to boost the supply of green bonds in emerging markets, IFC set up the Green Bond Technical Assistance Program (GB-TAP), a crucial addition to the EGO Fund. GB-TAP, which is financed by Switzerland, Sweden and Luxembourg, and provides advisory services on green bond issuances and impact reporting in line with the Green Bond Principles.

The IFC GB-TAP is an innovative approach in supporting the mobilisation of financing for green investments and expanding the capacity for green financing and issuance of green bonds to a considerable number of new emerging markets.

Over its seven-year time span, the GB-TAP intends to create and accelerate the growth of the green bond asset class in emerging markets through broad market creation activities (such as training, research, dissemination of best practices and case studies, development of templates for green bond impact reporting and information disclosure) and targeted local capacity building.  The objective of the programme is to develop the green bond market and build a bigger pool of green bond issues

In March 2019, IFC began offering its investment clients the option of structuring loans in accordance with the GBP. The principles, which are modelled on the GB, specify how loan proceeds should be used and projects selected in order to qualify for green-loan status. This can help businesses attract additional financing and enhance their reputation among shareholders, clients, and communities.

What more does IFC intend to do as part of its emerging market bonds strategy in future?

IFC intends to work on model green bond transactions issued by emerging market issuers, release market research reports to disseminate information about the opportunities in green finance in emerging markets, and develop tools to communicate about it.

Mobilising public and private institutional investors to deploy billions of dollars in capital for climate investments is essential to alleviate the impact of climate change. The EGO Fund does just that: as the largest green bond fund in the world, the Fund is helping to scale climate finance in emerging markets.

What more needs to be done to make the share of green bond issuance in emerging markets larger in relation to the rest of the world?

IFC has identified a gap in the market: the absence of a global standard for the external review of green bonds.  As a result, green bond investors often receive incomplete or incomparable information across their green bonds’ investments. The harmonisation of external reviews (including second opinions and other related services) aims to contribute to the development of accountability and quality standards for the green
bond markets.

One of the key concerns of green bond investors is the use of the proceeds. How good and reliable is the reporting on the use of proceeds in emerging markets?

The use of proceeds, as defined by the GBP, should be disclosed in the form of external reviews at the time of green bond issuances, and in the annual impact reports released by green bond issuers. IFC conducted a study to analyse the scope and quality of ESG data collected by leading ESG data providers.  A summary of findings on market constraints identified by IFC is as follows:

ESG data providers use proprietary ESG scoring frameworks, which differ with respect to materiality, indicator selection, and weightage. Each provider uses different definitions of materiality and varying methodologies to normalise this materiality across companies, such as a universal sustainability framework versus benchmarking issuers by industry or peer group. ESG data providers also use proprietary methods to aggregate and weight ESG factors for summary scores. These differences result in conflicting ESG analysis and scores.

ESG reporting standards and guidelines differ. Even when companies report on the same topics, the data they report may not be comparable. Without the ability to compare ESG performance, investors find it difficult to meaningfully integrate ESG data into investment decisions.

One of the key challenges that organisations operating in the green bonds space in emerging markets face is the capacity to manage E&S risks. How can this lack of capacity be overcome? What can governments, financial institutions, and companies do?

Indeed, there is often a capacity issue, at times it is just a market perception, for emerging markets bond issuers to disclose and manage E&S risks in a way that meets mainstream investors’ requirements.  To address these constraints, IFC is undertaking the following holistic solutions to advance emerging market environmental, social and governance (ESG) data:

IFC has explored ways to encourage emerging market capital market issuers, including green bond issuers, to disclose material ESG performance indicators to drive greater investment in emerging market capital markets. This includes working with an ESG data provider to increase the scope of coverage of emerging market issuers as well as broadening the coverage of collected ESG indicators. IFC is seeking to identify ESG data providers to support the collection and analysis of ESG information for emerging market issuers. IFC will use this information to benchmark emerging market issuers using its risk-weighted methodology.

IFC is also exploring ways to use artificial intelligence and machine learning to support ESG data collection and analysis. There are opportunities to complement IFC’s work with ESG data providers to expand coverage of emerging market issuers and widen real-time information collection.  Possible areas for development include encouraging AI-ESG data providers to use existing platforms to analyse data from emerging markets through the lens of IFC’s ESG Performance Indicators.

Overall these efforts will play a key role in increasing market transparency and catalysing additional opportunities and investments in quality emerging market green bonds.

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