This July the World Bank’s private sector lending arm, the International Finance Corporation (IFC), turns 50. Birthdays are a good time for reflection, so let’s take a moment to ask what the IFC is, and what it has done for the world.

The Old Gray Mare, She Ain’t What She Used to Be

The IFC was founded in 1956, with the goal of lending to small- and medium-sized businesses in developing countries, and the rationale that those enterprises traditionally have a hard time raising capital. However, the IFC’s current portfolio belies this mission, with a majority of the IFC’s money in 2004 going to projects in middle-income countries where private financing is readily available. In addition, project sponsors (“loan beneficiaries”) are often large multinational corporations like Hilton and Exxon-Mobil, a far cry from the original intended recipients of IFC funding.

One of the smallest arms of the World Bank, the IFC is also one of its least transparent or accountable, claiming the need for “business confidentiality” in the private sector. It only created its internal review body, the Compliance Advisor/Ombudsman (CAO), in 1999, which submits non-binding reports to the president of the World Bank. At the same time, the IFC’s social and environmental safeguards have continued to deteriorate, especially with regards to impact assessments on the environment and in project-affected indigenous communities.

In addition, the IFC is one of the fastest growing arms of the World Bank, with funding commitments to the institution growing by about 12% annually, and expected to rise to 30-53% by 2009. Given that private financial flows to the global South are growing exponentially, what is the relevance of a publicly-financed institution lending at market rates to already well backed parts of the private sector?

Looking the Gift Horse in the Mouth

Over the years the IFC, along with the rest of the World Bank, have adopted the noble – and even more misleading – rhetoric of “poverty reduction.” A visit to the IFC website reveals the slogan “Reducing Poverty, Improving Lives” prominently displayed on the homepage. But a glance through the latest annual report throws this rhetoric into question. Such a glance reveals that:

• n While large infrastructure projects along with oil, mining and gas projects accounted for 13.6% of spending in 2005, education and healthcare combined attributed for just 1.4% of IFC spending. World Bank-sponsored reports such as the Extractive Industries Review and the World Commission on Dams report show that large infrastructure and extractive industries projects create poverty by displacing communities and detaching them from their traditional means of livelihood. In other words, the IFC is spending at least 11 times more on a sector that generally creates poverty than on sectors that can be said to reduce poverty.
• n Large, well funded companies including luxury hotel companies and big oil companies are among the IFC’s clients. Among the most bizarre such projects are the renovation of “an international business hotel” in Burkina Faso, and “the further development of crude oil production” in Oman.

My Kingdom for a (Trojan) Horse

The IFC claims to be on the cutting edge of private sector financing, able to go into projects that no one else can go into. The veracity of that claim notwithstanding, we should ask whether these projects should be financed in the first place. Without the involvement of the IFC, neither the Chad-Cameroon pipeline project nor the Bujagali dam project in Uganda – two projects that have had disastrous social and environmental consequences – would have been built.

Developed largely with the support of the U.S. government in the 1950s, the IFC plays the role of financing those who are already rich. Even those who believe in private sector led development are unable to answer the question of why there should be an international, public sector backed institution to provide financing and political cover to the well-off.

More importantly, the IFC is the most egregious part of a system that prioritizes profit over everything else. Companies come to the IFC – or are sought out by the IFC – in order to build projects that will make money. Whether or not they will benefit society is discussed only as an afterthought. Communities in which the project will be built have little say in the matter.

Backing a New Horse

There are alternatives to letting big money and international financial institutions dictate the terms of development. One such alternative is being put into practice by the Landless People’s Movement of Brazil, also known by their Portuguese acronym, MST. Their website reads:

“Since 1985, the MST has peacefully occupied unused land where they have established cooperative farms, constructed houses, schools for children and adults and clinics, promoted indigenous cultures and a healthy and sustainable environment and gender equality. … Members have not only managed to secure land, therefore food security for their families, but also continue to develop a sustainable socio-economic model that offers a concrete alternative to today's globalization that puts profits before people and humanity.”

The MST and organizations like it around the globe focus on the community and its needs instead of profit and its dictates. They represent a very different model of development, one that is more sustainable, more cost effective and people oriented than development policies pushed by the IFC and the World Bank group. It’s time to prioritize development that is good for the earth and its inhabitants and put organizations like the IFC out to pasture.