By Bodo Ellmers, Nuria Molina and Visa Tuominen,
Eurodad launches a report this week, Development diverted: How the International Finance Corporation fails to reach the poor , which assesses whether the World Bank International Finance Corporation’s support to companies that invest in poor countries meet key standards of development effectiveness.
Development finance institutions, including the International Finance Corporation (IFC), provide financial support to companies investing in the South in order to support private sector activities in developing countries. For many decades, financial assistance to the private sector was no more than an addendum to the World Bank’s and other multilateral development banks’ (MDBs) core business – providing assistance to developing country governments.
However, in the last decade, the IFC – the largest of all the MDB private sector lending arms – increased its investments by four times. At current trends, private sector finance may become the new core business of the Bank.
A vibrant private sector is crucial for development, as it creates jobs, provides essential goods and services, and is a source of tax revenue. However, not all private sector activities have a positive developmental impact.
The IFC, as an institution with an explicit development mandate, should only support economic activities and invest in companies that can contribute to pro-poor and equitable development. However, the debate on which private activities could have the most positive impact on the poor has been sorely missing in public development institutions including the IFC. This sometimes results in prioritising attracting more foreign direct investment in the South, rather than focusing on what would be most effective in contributing to sustainable development and building a vibrant private sector in developing countries.
This paper reviews IFC operations in low income countries from 2008 to date to assess whether its lending and investments in the world’s poorest countries satisfy key standards of development effectiveness.
Are the IFC’s investments really country-owned and aligned with developing countries’ national development strategies? Are they supporting, where possible, country systems, institutions and firms? Or are they mainly helping firms from the North enter developing country markets? Is the IFC actively seeking to support investments that have the greatest added-value in delivering development outcomes?
This report addresses these questions and suggests ways in which the IFC should dramatically change its business model to promote private sector investments that genuinely support pro-poor development and poverty eradication.
Download the full report below.
The report is also available in Spanish. Download the Spanish version below.