Unfunded Risk Participations

Unfunded risk participation is a financial arrangement where IFC assumes a specified portion of the credit risk associated with a loan or debt facility by a financial institution to a single borrower, or to a portfolio of pre-approved debt facilities, without providing upfront funding. In this arrangement IFC, as the Risk Participant, conducts its own due diligence on the credit quality of each underlying Borrower. 

Following a default or credit event (and typically the acceleration of the underlying loan), the Lender can request payment from IFC corresponding to the portion of the risk participation.  

By entering into an unfunded risk participation with IFC, the Lender therefore transfers a portion of its credit exposure to IFC and reduces its credit exposure and capital allocation (subject to local regulations); this allows the Lender to offer larger amounts of financing to projects with a higher risk profile. 

At the same time, by offering Unfunded Risk Participations, IFC can leverage its triple-A (AAA/Aaa) credit rating to facilitate financing and take exposure to relevant target segments while relying on the resources and expertise of a financial institution for the day-to-day management and funding of the underlying facilities.