The Hindu Business Line : Saga of purposeful accomplishment

The International Finance Corporation (IFC), functioning under the shade of the two giant Bretton Woods trees — The World Bank and the International Monetary Fund — often gets little attention and less credit for the quiet contribution it is making, in terms of investment and advisory services, towards building long-term partnerships with emerging markets.

Its focus is commendably on countries and regions whose needs are the greatest and in selecting projects for assistance, it applies three important criteria: Ensuring environmental and social sustainability; promoting private sector growth in key sectors such as infrastructure, health and education; and supporting the development of local financial markets.

Its report for 2007 reflects the quintessence of its approach: Working with private investors, taking debt and equity risks that the market would not otherwise bear, to support promising business projects that might not otherwise receive funding. Thereby, it largely lives up to its claim of being unique as a global multilateral institution “working at the intersection of the public and private domains”.

The spread of its investments under various heads is both balanced and relevant: Financial markets top the list with 41 per cent, followed in percentage terms by manufacturing and services (16.7), oil, gas, mining and chemicals (12), infrastructure (11.4), agribusiness (7.6), information and communication technologies (4.9), private equity and investment funds (3) and health and education (2.4).

The accent in all these efforts is on strengthening of open and competitive markets in developing countries, generating productive jobs, guaranteeing delivery of basic services and enabling the poor to escape poverty and improve their lives. Another notable fact is that the change in the direction and thrust of IFC’s market.

To quote the CEO, Mr Lars Thunell, “In the past, IFC mainly provided financing to firms from industrialised countries as they invested in emerging markets, and this work was a relatively small part of World Bank Group activity. Today, nearly two-thirds of our client firms are based in emerging markets (which) are also expanding into other emerging markets, bringing capital, technology, management expertise and jobs.”

DOTS

There are four features of IFC’s working which are worthy of being highlighted and emulated. The first is its Development Outcome Tracking System (DOTS) to measure the development effectiveness of its investments, by appropriate yardsticks governing performance with reference to financial, economic, environmental and social parameters, and the value addition by the private sector.

Especially for the purpose of environmental and social risk-return analysis, it has laid down new policy and performance standards, which have been accepted by leading financial institutions covering nearly 90 per cent of global, cross-border project finance.

The second laudable feature is the importance given to women-owned businesses, not just for the sake of gender equity, but because, as the report says, “financing them is good for business — and it fuels development, as increasing poor women’s economic empowerment leads to greater spending on family welfare, nutrition and children’s education”.

Third, the IFC is perhaps one of the few multilateral agencies which accords high priority to agribusiness in developing countries, using investments and advisory services to help the sector “to meet an increasing demand for food in an environmentally sustainable and socially inclusive way”.

Fourth, the IFC has instituted a system whereby its staff are given sabbaticals each year for volunteer work. The staff also raise money (matched equally by the IFC) for various charities through an annual Community Connections Campaign. IFC managers also reach out to the poor and the destitute by arranging soup kitchens, food banks and homeless shelters. (I had written about the Volunteer Manager in this column on May 5, 2004.)

All in all, the IFC’s is a saga of purposeful accomplishment and as such deserves to be better known.

B.S. RAGHAVAN

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