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International Finance Corporation

The International Finance Corporation (IFC) promotes sustainable private sector investment in developing countries as a way to reduce poverty and improve people's lives.

IFC is a member of the World Bank Group and is headquartered in Washington, DC. It shares the primary objective of all World Bank Group institutions: to improve the quality of the lives of people in its developing member countries.

Established in 1956, IFC is the largest multilateral source of loan and equity financing for private sector projects in the developing world. It promotes sustainable private sector development primarily by:

  1. Financing private sector projects and companies located in the developing world.
  2. Helping private companies in the developing world mobilize financing in international financial markets.
  3. Providing advice and technical assistance to businesses and governments.

Ownership and Management

IFC has 179 member countries , which collectively determine its policies and approve investments. To join IFC, a country must first be a member of the International Bank for Reconstruction and Development (IBRD). IFC's corporate powers are vested in its Board of Governors, to which member countries appoint representatives. IFC's share capital, which is paid in, is provided by its member countries, and voting is in proportion to the number of shares held. IFC's authorized capital (the sums contributed by its members over the years) is $2.45 billion; IFC's net worth (which includes authorized capital and retained earnings) was $9.8 billion as of June 2005.

The Board of Governors delegates many of its powers to the Board of Directors, which is composed of the Executive Directors of the IBRD, and which represents IFC's member countries. The Board of Directors reviews all projects.

The President of the World Bank Group, Robert Zoellick, also serves as IFC's president. IFC's CEO and Executive Vice President, Lars Thunell, is responsible for the overall management of day-to-day operations. He was appointed on January 15, 2006.

Although IFC coordinates its activities in many areas with the other institutions in the World Bank Group, IFC generally operates independently as it is legally and financially autonomous with its own Articles of Agreement, share capital, management and staff.

Funding of IFC's activities

The IFC's equity and quasi-equity investments are funded out of its paid-in capital and retained earnings (which comprise its net worth). Strong shareholder support, triple-A ratings, and a substantial capital base allow the IFC to raise funds on favorable terms in international capital markets. As of June 30, 2006, retained earnings represented almost three-quarters of the IFC's $9.8 billion net worth.

IFC activities

Within the World Bank Group, the World Bank finances projects with sovereign guarantees, while the IFC finances projects without sovereign guarantees. This means that the IFC is primarily active in private sector projects, although some projects in the public sector (at the municipal or sub-national level) have recently been funded.

Private sector financing is IFC's main activity, and in this respect is a profit-oriented financial institution (and has never had an annual loss in its 50-year history). Like a bank, IFC lends or invests its own funds and borrowed funds to its customers and expects to make a sufficient risk-adjusted return on its global portfolio of projects.

IFC's activities, however, must meet a second test of contributing to a reduction in poverty in line with its mandate. In practice, this is broadly interpreted, but considerable time and effort is devoted to both (i) selecting projects with positive developmental outcomes, and (ii) improving the developmental outcome of projects by various means.

Apart from its core investment activities, IFC also carries out technical cooperation projects in many countries to improve the investment climate. These activities may be linked to a specific investment project, or, increasingly, to broader goals such as improving the legislative environment for a specific industry. IFC's technical cooperation projects are generally funded by donor countries or from IFC's own budget.

Critics have questioned the sustainability of some IFC-funded projects. The IFC recently invested $9 million in the upgrading of a slaughterhouse facility in the Amazon region owned by Brazil's biggest beef producer, despite opposition from local NGOs and the Sierra Club.

See also

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References

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