What Is the International Finance Corporation (IFC)?

What Is the International Finance Corporation (IFC)?

Let me tell you about the International Finance Corporation, or IFC, which is part of the World Bank Group. It provides financing for private-enterprise investments in developing countries worldwide, through loans and direct investments. As an affiliate of the World Bank, the IFC also offers advisory services to help build private enterprises in nations that lack the infrastructure or liquidity needed for businesses to get funding.

Key Takeaways

You should know that the IFC is a member of the World Bank Group and focuses on financing private enterprise investments in developing countries. The organization states its main goal is eliminating poverty through economic development, but critics argue it prioritizes profits over people.

How the International Finance Corporation (IFC) Works

The IFC was set up in 1956 as part of the World Bank Group, with a focus on investing in economic development. It claims to be the largest global development institution dedicated to the private sector in developing countries. The IFC works to ensure private enterprises in these nations can access markets and financing.

Headquartered in Washington, D.C., the IFC operates in more than 100 countries, including regions like Africa, the Middle East, Central Asia and Turkey, Afghanistan and Pakistan, Europe, Latin America and the Caribbean, and South Asia.

Its stated goals cover developing sustainable agriculture, expanding small businesses' access to microfinance, supporting infrastructure improvements, and promoting policies in climate, health, and education.

To raise funds, the IFC issues bonds in global markets. As of 2023, it issued $12.5 billion across 198 bonds in 22 currencies. In fiscal year 2023, the IFC committed a record $43.7 billion to private companies and financial institutions in developing countries. This includes fast-track financing to support those impacted by the COVID-19 economic downturn.

Impact of the IFC

The IFC aims to help people in developing countries create opportunities using its experience, financial resources, innovation, and technical knowledge. According to the organization, its accomplishments include reaching 2.7 million farmers, serving 329.5 million patients, supporting 3.4 million jobs, and providing 63.3 million people with internet connections.

In 2023, the IFC also reduced 11.5 million tonnes of greenhouse gases through its projects and provided electricity to 69.7 million people.

Criticism of the IFC

Even though it's part of the World Bank Group and serves as its private sector lending arm, the IFC receives significant criticism due to its size and influence. While one of its main goals is reducing poverty via economic development, critics say it behaves more like a private investment bank, focusing on corporate profits and sometimes ignoring the environmental and social impacts of its projects.

Another major criticism involves how the IFC handles investments when transitioning them to locals. The Compliance Advisory Ombudsman has dealt with complaints from 2013 to 2022 that contradict the IFC's sustainability commitments. It also identified weaknesses in the group's exit strategies, particularly early exits in debt financing cases.

Examples of IFC Investments

In Africa, the IFC announced a partnership in July 2024 with Proparco, a French development finance institution, and Helios Sports and Entertainment Group to expand sports and entertainment. The global sports market was worth $480.12 billion in 2023 and is expected to grow to $629.81 billion by 2028, while entertainment is projected to rise from $2.1 trillion to $2.9 trillion between 2023 and 2027. Africa's share in these industries is small but growing, driven by e-commerce, fashion, and audio-visual content. This partnership aims to boost African economies by creating jobs, especially for youth, and supporting industries like tourism, real estate, creative economies, and media.

In Pakistan, the IFC provided $145 million to help FrieslandCampina, one of the world’s largest dairy producers, acquire a 51% controlling stake in Engro Foods, Pakistan’s leading dairy processor. Pakistan is the fourth-largest milk-producing country, but demand exceeds supply due to poor infrastructure and outdated supply chains, with small subsistence farms making up nearly 80% of output. FrieslandCampina plans to share its expertise and best practices with small farmers supplying Engro Foods and others in Pakistan to increase productivity and reduce waste. The IFC expects this to benefit 200,000 farmers and 270,000 distributors, plus create 1,000 new jobs in the dairy supply chain.

What Does the International Finance Corporation Do?

The IFC is the private sector lending arm of the World Bank Group. Its goal is to offer development and growth opportunities for people in developing countries through the private sector.

Who Governs the International Finance Corporation?

The IFC is owned by 186 member countries that collaborate on its policies. The board of governors, consisting of an appointed governor and alternate from each, delegates powers to a 25-member board of directors.

How Does the International Finance Corporation Make Money?

The IFC generates revenue by issuing bonds in international capital markets. It was the first to offer bonds in emerging market currencies, and the funds support its lending programs.

The Bottom Line

The IFC operates under the World Bank Group umbrella as one of several global institutions in developing countries. It creates markets and opportunities by providing private-sector loans funded through bonds in local currencies.