International Finance Corporation (IFC)

The IFC was established in 1956 to support the growth of the private sector in the developing world. The IFC’s stated mission is “to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people’s lives.”

While the World Bank (IBRD and IDA) provides credit and non-lending assistance to governments, the IFC provides loans and equity financing, advice, and technical services to the private sector. The IFC also plays a catalytic role, by mobilizing additional capital through loan syndication and by lessening the political risk for investors, enabling their participation in a given project. The IFC has worked with more than 3319 companies in 140 countries since its inception in 1956.

It is a public entity, although its clientele consists of transnational, national, and local private sector companies, operating in a competitive and fast-moving business environment.

While the IFC has made some important gains in transparency in recent years, its information disclosure and public consultation processes leave ample room for improvement. The Bank Information Center (BIC) tracks problem projects at the IFC to highlight issues with environmental and social implications. BIC also examines the effectiveness of the Compliance Advisor Ombudsman mechanism in cooperation with the Global Transparency Initiative (GTI), advocating for more independent and systematic project review process at the IFC.

Basic Facts About IFC (IFC website)

The International Finance Corporation is based in Washington, DC, and maintains 80 field offices throughout the world. While most of its projects are administered from its Washington headquarters, the IFC has several field-based initiatives like the Africa Enterprise Fund, a pilot program which provides smaller loans to local African enterprises. The IFC aims to increase the proportion of its activities administered from field offices.

Members

To join the IFC, a country must first be a member of the World Bank. Each member government is a shareholder of the IFC, and the number of shares a country has is based roughly on the size of its economy. The United States is the largest single shareholder, followed by Japan, Germany, the United Kingdom, and France.

President and Vice-Presidencies

The President of World Bank also serves as IFC President.

The IFC has  Vice-Presidencies: Financial and Private Sector Development & IFC Chief Economist; General Counsel; Business Advisory Services; Risk Management; Human Resources, Communications & Administration; Finance & Treasurer; Corporate Secretary; Real Sectors and Europe and Central Asia; Middle East, North Africa and Global Infrastructure; Asia, Latin America, and Global Manufacturing; Europe, Central Asia, and Global Financial Markets; and Sub-Saharan Africa and Western Europe.

Board of Executive Directors

Although the IFC is legally separate from the World Bank, its Board of Directors is comprised of the same members as the World Bank’s Board, with slightly different voting shares. The IFC’s Board of Directors runs the day-to-day operations of the institution. The Executive Directors receive their power from the Board of Governors, which consists of one Governor from each member country. The Board reviews and approves the IFC’s project financing operations, policies and strategies. Voting rights on the Board are allocated in proportion to the number of shares held by member countries.

WBG Board of Executive Directors Web page (includes link to monthly Board Calendar and list of Board members)

Office of the Compliance Advisor/ Ombudsman

The Compliance Advisor/Ombudsman (CAO) position was created in 1999 to improve the environmental and social performance of the IFC and MIGA and to address complaints of people affected by its projects. To fulfill this mandate, the CAO has the capacity to carry out compliance audits, investigate claims made regarding the impacts of IFC and CAO projects, facilitate mediation between the institutions and complainants, and provide independent advice to IFC and MIGA senior management. The CAO reports directly to the President of the World Bank Group.

IFC’s organizational chart (IFC website)

The IFC provides loans, equity investment advice, and technical assistances to private businesses in developing countries. The IFC lends to the private sector and does not accept host government guarantees on its loans. It has been consistently profitable since 1956.

Lending products

The IFC provides services such as guarantees, quasi-equity, and equity financing, risk management products, and advisory activities. However loans – as a financing tool – represent the majority of the Corporation’s portfolio. Loans usually have the following characteristics:

• Terms amortizing with final maturities of up to 12 years;
• Currencies in major convertibles such as the U.S. dollar, Euro, Swiss Franc, or the Japanese Yen;
• Fixed or variable interest rates;
• Pricing that reflects the market conditions along with country and project risks.

A-Loans indicate loans from IFC account, and B-loans are syndicated loans from participating private banks.

The IFC sets limits on its total own account debt and equity financing on projects in order to ensure participation of investors and lenders within the private sector. The IFC lends up to 25 percent of the total estimated project cost for new projects. Under special circumstances, the percentage can be up to 35 percent in small projects but not the single largest shareholder. However with expansion projects, IFC may also provide up to 50 percent of the project cost when its investment is less the 25 percent of the total capitalization of the project company.

An equity investment in a company conditions financing to not exceed 35 percent of the company’s total share capital and IFC not serve as the single largest shareholder. Three percent is the IFC maximum investment in a single obligor. Also equity with quasi-equity investments in a single obligor should stay under 3 percent while straight equity investments under 1.5 percent of the total Corporation’s net worth plus general reserves.

Investment process

The IFC accepts investment proposals directly from companies or entrepreneurs seeking to establish a new venture or expand an existing enterprise. After the initial proposal, the IFC may appraise the feasibility of the project with a project study or business plan from the company or entrepreneur. Private companies with some government ownership may also seek financing from the IFC. Although the IFC mainly focuses on developing the private sector in developing countries, many of IFC projects entail close coordination and relationships with government agencies in developing countries. The IFC investment process has six main stages: Identification and Appraisal, Board Approval, Document Negotiation, Commitment, Disbursement, and Supervision. The Vice President of Investment and Operations is responsible for the initial first four steps, but Disbursement and Supervision falls under the responsibility of the Portfolio and Risk Management Vice President.

Requirements for receiving funding

The IFC provides the following criteria for funding eligibility:

• Be an IFC member from the developing country
• Be in the private sector
• Be sound technically
• Be commercial with profitability
• Be economically beneficial to the developing community
• Meets the IFC standard for social and environmental policy.

BIC supports efforts to promote responsible IFC policies that advance social and environmental justice and enable citizen participation in development processes.

The IFC updated its Sustainability Framework, including the Performance Standards in May 2011. This represents the first revision of the Performance Standards since they were first implemented. With the acknowledgement of the right of free, prior, and informed consent for indigenous peoples, as well as exposing extractives contracts to public scrutiny, the new Framework has begun to bring the IFC into line with 21st century best practices.

Additionally, The IFC’s new Access to Information is a major improvement over its previous policy, which privileged corporate secrecy over the public good. The new policy is modeled on the main World Bank policy, which BIC has been involved with from the beginning.

Though many gaps still remain, the new policies will provide an opening for much greater change.

 

An overview of the IFC can be found in Tools for Activists: An Information and Advocacy Guide to the World Bank Group.

 

Key Documents

The IFC makes only two investment-related documents available to the public:

• Summary of Proposed Investment (SPI), a short description of all proposed projects.
• Environmental and Social Review Summary (ESRS), for projects with adverse environmental and social risks.

SPI and ESRS documents are disclosed a minimum of 60 days for high-risk projects (Category A projects) and 30-days for all other projects before project approval by the IFC’s Board of Directors.

In addition to the above documents, IFC requires that the project sponsor (the company to which IFC is providing financing), make the following publicly available:

• Social and Envrionmental Assessment (SEA), considers the relevant social and environmental risks of the project
• Action Plan (AP), the legally binding social and environmental mitigation measures that must be implemented by the borrower
• Annual Reports on the AP, updating the public on implementation of the AP

 

Information Disclosure

Visit the IFC publications web page to view records, submit inquiries, and search project documents.

Also visit the World Bank Infoshop webpage or contact:

World Bank InfoShop
1818 H Street, NW, Room J1-060
Washington, DC 20433, USA
Tel: +1-202-458-5454
Fax: +1-202-522-1500
pic@worldbank.org
Hours of Operation: 9:30am to 5:30pm (Monday through Friday)

If the information cannot be accessed readily from the IFC website, the Infoshop, or the PIC, it can be requested in writing (email, mail, or fax) from IFC’s Corporate Relations Unit at the following address:

• Corporate Relations Unit
  2121 Pennsylvania Avenue
  N.W., Washington, D.C., 20433
  USA.
  Telephone: +1 (202) 476-3800
  Fax: +1 (202) 974-4384,

Or use the Corporate Relations website to search for e-mail addresses.

Requests must be specific.  Contingent on the complexity of the information, IFC should respond within thirty calendar days upon receipt of the written request.  If you feel like you have been unreasonably denied information, you may appeal the denial to IFC Disclosure Policy Advisor, who reports directly to the IFC Executive Vice President.  An appeal response should be issued in written form within thirty calendar days except with complex cases.

 

IFC website

The IFC maintains an online project database searchable by country, region, sector, environmental category, and keyword. IFC SPIs and ERS’s can be found in full in this database, from the World Bank Info Shop or the IFC resident mission in the country where the project is located, if one exists.

 

Externals

Connect to other networks working on these issues through the links below.
Global Transparency Initiative
ARTICLE 19: Global Campaign for Free Expression
Transparency International