IFC provides up to US$700m of Mastercard and Visa settlement-risk guarantees

The International Finance Corporation is providing up to US$700m of guarantees to absorb part of the credit settlement risk associated with financial institutions joining Visa and Mastercard payment networks, using development-finance risk sharing to loosen constraints on digital payments across emerging markets.

The World Bank Group’s private-sector arm said the programme is aimed at banks, fintechs and other financial institutions that can face financial or collateral requirements limiting their participation in global payment systems.

Mastercard has established a US$500m global settlement exposure facility with IFC, initially focused on emerging markets in Europe and Latin America. The structure is intended to reduce the settlement-risk constraints facing financial institutions connecting to Mastercard’s network.

Visa has separately agreed a facility expected to provide about US$200m of risk sharing over five years. Its initial scope covers 14 Latin American and Caribbean countries and approximately 50 financial institutions with below-investment-grade ratings.

Under the Visa arrangement, IFC will share credit settlement risk arising from transactions associated with enrolled institutions.

The US$700m headline figure is therefore guarantee and risk-sharing capacity, not US$700m of cash being lent to banks, merchants or consumers.

That distinction makes the transaction relevant to transaction banking and risk distribution. IFC is effectively using its balance sheet to assume part of a risk that would otherwise sit within the payment ecosystem, potentially allowing Visa and Mastercard to accommodate institutions whose credit standing or collateral requirements would constrain their access.

The programme is not a receivables-finance facility. Its working-capital relevance is indirect, through the infrastructure businesses use to collect payments and the liquidity implications of bringing more merchants and SMEs into formal digital-payment channels.

IFC estimates that participating institutions could generate about US$280bn of additional digital payments. It also expects them to issue 360m additional cards and add 90m active users, including 39m women. Those figures are projections rather than committed transaction volumes.

The initiative nevertheless represents an unusually large application of development-finance guarantees to payments infrastructure. Rather than providing conventional bank lending, IFC is using credit-risk sharing to increase the capacity of commercial payment networks in markets where local financial institutions can otherwise struggle to meet participation requirements.