(Yicai Global) July 17 -- The Asian Infrastructure Investment Bank will offer local-currency financing in India, Indonesia, Thailand, Turkey and Russia within the year to meet local market demand, The Paper reported.

Several AIIB officials confirmed this, including its President Jin Liqun, during the AIIB annual meeting held in Luxembourg from July 12 to July 13.

Financing is "in response to the need of the borrowing countries," and many emerging markets are "excited" about this program, Jin said, adding the scheme will be put into effect by issuing local-currency bonds or through currency swaps.

The program was not devised to challenge the greenback's status, but to meet market demand, said AIIB's head of treasury strategy Darren Stipe. The five are just the first contingent of countries; with more set to join in next year, he noted.

Local-currency financing will help to avert exchange rate risks. The first set of nations are emerging markets with intense rate fluctuations, and private capital may delay project construction financing to them to shield its home currency or cut expenditures to avoid risks so an alternative source of financing is needed.

In response to this trend, the AIIB will continue to use the US dollar as the currency of settlement but will extend financing plans settled in local currency to the five this year.

Compared to global heavyweights like the buck, financing with local currency is extremely complex as these emerging markets are still in not fully developed. Some lack financial instruments, while others suffer a dearth of market participants. The five currencies chosen this time all have good liquidity, and the buyer and seller markets are very active, Stipe said.

They were selected mainly because their local industries need support. For example, the AIIB is cooperating with India in energy, transport, water supply and other fields, and local demand is very strong.

Local-currency financing is more flexible than dollar financing in India, said AIIB Director General of Investment Operations Yee Ean Pang.

The Beijing-based AIIB is a multilateral financial institution that supports infrastructure construction in the Asia-Pacific region. It has 70 members from across the world, with  a further 27 prospective ones waiting in the wings.

Editor: Ben Armour