AIIB to provide local currency financing in India, Pakistan

China-based Asian Infrastructure Investment Bank (AIIB), in which India is the second largest shareholder, plans to launch local currency financing in India and some other Asian nations later this year to reduce cross-border investment risks caused by exchange-rate fluctuations.

The first group of countries to have this new service could include India, Indonesia and Pakistan, AIIB President Jin Liqun was quoted as saying by state-run China Daily.

Using local currency for cross-border financing is a service usually provided by multilateral development organisations to hedge against foreign exchange-rate risks arising from settlement in US dollars. The risk grew when the greenback became stronger against currencies in many emerging economies last year.

Rising debt financing costs from high global interest rates and cross-border investment uncertainties as a result of trade tensions have raised concerns about sustainable infrastructure financing, said Jin, who recently visited India and met Prime Minister Narendra Modi.

The AIIB, which provides a multilateral regional financing and investment platform for infrastructure development, decided to expand project investment to USD four billion in 2019 in Asia and elsewhere.

"Recent currency volatility in emerging markets is a cause for concern. It is likely to lead to delays in projects, weakening the outlook for the project pipeline," a recent AIIB report said.

With authorised capital of USD 100 billion, China is the largest shareholder with 26.06 per cent voting shares in the AIIB. India is the second largest shareholder with 7.5 per cent followed by Russia 5.93 per cent and Germany with 4.5 per cent.

The bank has already provided close to a USD billion investment loans to various projects in India.