International Finance Corporation (IFC)
The International Finance Corporation (IFC) is a prominent global development institution based in Washington, D.C., focused on financing the private sector in developing countries. Founded in 1956 as part of the World Bank Group, IFC aims to eradicate extreme poverty by 2030 and foster shared prosperity through job creation and infrastructure development. It operates in over 100 developing nations, providing loans, equity investments, trade finance, and advisory services to promote sustainable economic growth. With a portfolio exceeding $63 billion as of 2022, IFC invests in sectors such as financial markets, infrastructure, manufacturing, and agribusiness. Notable projects include affordable housing initiatives and renewable energy developments. IFC also plays a vital role in mobilizing private investment and encouraging adherence to environmental and social standards among its clients. Its financial independence has allowed it to raise capital on its own, enhancing its role in addressing the significant infrastructure needs of emerging markets. Through these efforts, IFC seeks to create lasting impacts on the economies and communities it serves.
International Finance Corporation (IFC)
Date Founded: 1956
Industry: Financing for developing countries
Corporate Headquarters: Washington, DC
Type: Private (quasi-government)
Overview
The International Finance Corporation (IFC), headquartered in Washington, DC, is the largest global development institution focused solely on financing the private sector in developing countries. As part of the World Bank Group, IFC is owned by the World Bank’s 186 member countries. Its two primary stated goals are to end extreme poverty in all countries by the year 2030 and to increase shared prosperity for the poor in developing countries by creating opportunities for people to improve their lives.
IFC operates in more than one hundred developing nations, working to assist private companies and financial institutions to create jobs, build infrastructure, raise education levels, improve the quality of health care, and generate tax revenues for local governments.
To achieve its goals, IFC makes loans and equity investments, invests in private equity funds, provides trade finance to businesses and public-private partnerships, and provides advisory services to its clients. In fiscal year 2022, IFC invested over $32.8 billion in developing countries. The institution seeks to maintain independent financial strength and, as of 2022, generates a net income of around $1 billion annually.
In looking for financially viable and self-sustaining projects, IFC frequently teams with private-sector organizations or local government entities. For example, in 2016, IFC partnered with CITIC Construction Company of China to develop affordable housing projects in sub-Saharan African countries. The $300 million project aimed to construct thirty thousand homes over five years, starting in Kenya, Nigeria, and Rwanda. This project was expected to create 150,000 new jobs in Africa.
History
IFC was created in 1956 at the urging of Robert L. Garner, a senior executive at the World Bank Group. The World Bank had commenced operations in 1946 with thirty-two member nations, $7.7 billion in capital, and headquarters in Washington, DC. Formerly a New York financier, Garner felt strongly that the private sector could play a significant role in international development. In 1950 he started pushing for the formation of a separate institution that would encourage private investment in developing countries, and IFC was the result. It commenced operations in 1956 with Garner as its first CEO, twelve full-time employees, and $100 million in authorized capital. IFC was initially allowed to only make loans, but over time it was authorized to also make equity investments in projects it financed.
The first investment made by IFC was a $2 million loan in 1957 to an affiliate of Siemens in Brazil, to manufacture electrical equipment. IFC made its first equity investment in 1962, in a Spanish manufacturer of auto parts.
Though headquartered in Washington, DC, more than 50 percent of IFC’s staff of over four thousand is based in other countries. This decentralization began in the 1970s, initially with one-man offices in Jakarta, Indonesia, and in Nairobi, Kenya. IFC now has offices in over eighty countries.
While previously dependent on the World Bank for financial support, IFC became financially independent in 1984, and was thereafter able to raise money on its own credit in the world’s capital markets. In 1989, IFC was awarded the highest rating, AAA, by independent credit rating agencies.
In 2022, each of IFC’s 186 member countries appointed one governor and one alternate governor to its Board of Governors, with the office often held by the country’s minister of finance or another senior government official.
Projects
It was estimated by IFC that the infrastructure needs of developing countries will require investment of one trillion dollars every year. Antoine van Agtmael, an investment officer at IFC, coined the commonly used phrase "emerging markets" in 1981.
Many emerging markets lack the basic physical, social, and financial infrastructure required to stimulate growth and create jobs. Power supply, health care, education, transportation, telecommunications, agribusiness, and financial institutions have not been adequately developed in many parts of the world, and those are some of the key sectors targeted by IFC in allocating its resources.
Some examples of projects funded by IFC include a hydroelectric power plant in the West African country of Cameroon, in partnership with the Cameroon government and a French electric utility; several for-profit college chains in Brazil, which help meet the demand for affordable higher education; photovoltaic (solar) power plants in Jordan; loans to microfinance lenders in several countries; and an iron-ore mining project in Guinea in partnership with two multinational companies and the Guinean government.
Impact
IFC estimates its clients helped create 1.6 million jobs in fiscal 2021. After the global COVID-19 pandemic began in 2020, the IFC invested $4 billion in at-risk countries in 2021 with the goal of providing access to essential health care materials. That same year, it also provided $8 billion to businesses threatened by losses resulting from the pandemic. In 2022, IFC committed $33 million, mostly to financial markets, infrastructure, and manufacturing in Africa and Latin America. In one project, IFC helped develop affordable housing in Timor-Leste, one of the world's youngest nations, and improve grain quality in Rwanda.
Given its size, complex and bureaucratic ownership and governance structure, and the large amounts of money at stake, IFC occasionally becomes embroiled in controversy about its investing and lending practices.
IFC also serves as a conduit for other investors seeking opportunities in developing countries. In 2014 it invested $5 billion of capital in these independent investors. It created the $1.2 billion IFC Global Infrastructure Fund in 2014, enabling third-party investors to use the vast reach of IFC and the World Bank to find attractive investments in the developing world, while providing much-needed capital for projects in those countries. Given the large capital requirements for building necessary infrastructure in developing countries, IFC will increasingly seek capital from other institutional investors to enable it to fund large projects.
The portfolio of investments built by IFC exceeded $63 billion in 2022. Of this amount, $24 billion is invested in financial markets, $9 billion in infrastructure projects, $4.5 billion in manufacturing companies, and $4 billion in agribusiness and forestry. It also has investments in trade finance; oil, gas and mining; and telecommunications.
Using its financial clout, IFC encourages companies in which it invests to adopt environmental and social development standards and has increasingly invested in renewable energy, energy efficiency, and other earth-friendly initiatives.
Bibliography
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Annual Report 2021: Meeting the Moment. IFC, 2021, www.ifc.org/wps/wcm/connect/corp‗ext‗content/ifc‗external‗corporate‗site/annual+report/download. Accessed 25 Jul. 2022.
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