International Finance Corporation (IFC)

The International Finance Corporation (IFC) is an international financial agency that encourages the growth of the private sector in less developed 

nations by providing investment, consulting, and asset management services. The International Finance Corporation (IFC) is a subsidiary of the World Bank Group and operates out of Washington, District of Columbia in the United States.

IFC

In 1956, it was created as the World Bank Group’s private-sector arm to advance economic development via the investment of for-profit and commercial initiatives aimed at reducing poverty and boosting development.

The stated mission of the International Finance Corporation (IFC) is to generate opportunities for individuals to lift themselves out of poverty and improve their standard of living through the mobilisation of financial resources for private enterprise, the promotion of accessible and competitive markets, the support of businesses and other private-sector entities, the creation of jobs, and the delivery of essential services to individuals who are living in poverty or who are vulnerable in other ways.

The IFC is an organisation that is owned and managed by the countries that make up its membership, but it has its own executive leadership and employees that run the day-to-day operations of the business. It is a corporation, and its shareholders are the member governments of the company. These countries provide the corporation with paid-in capital and have the ability to vote on any issues pertaining to the business. The International Finance Corporation was initially more financially integrated with the World Bank Group; however, later on, it was established independently and eventually became authorised to operate as a financially autonomous entity and make independent investment decisions. Initially, it was more financially integrated with the World Bank Group.

The entire amount of money that the company put into investments in 2011 was $18.66 billion. In 2011, it made a commitment of $820 million to consulting services for 642 projects and held liquid assets totalling $24.5 billion. The International Finance Corporation is in a healthy financial position and was awarded the best possible ratings by two separate credit rating agencies in 2018.

Functions

The International Finance Corporation (IFC) offers a variety of investment services, including client risk management services, treasury services, liquidity management, loans, equities, trade finance, syndicated loans, structured and securitized finance, and syndicated loans.

The International Finance Corporation (IFC) funded a total of $12.7 billion in 528 projects spread out over 103 countries during its fiscal year 2010. Approximately 39 per cent of that entire investment commitment was spent into 255 projects that were spread among 58 member nations of the World Bank’s International Development Association. The amount invested was $4.9 billion (IDA).

The International Finance Corporation (IFC) provides enterprises and private projects with loans that, on average, have maturities ranging from seven to twelve years. It works up an appropriate repayment plan and grace period for each loan on an individual basis in order to fulfil the currency and cash flow requirements of the borrowers. If it is determined that a project justifies it, the International Finance Corporation (IFC) may make loans with extended terms or prolonged grace periods. The International Finance Corporation (IFC) may also extend loans to leasing firms and financial intermediaries.

Its portfolio of loans comprised those denominated in 25 different local currencies in 2010, and 45 different local currencies in 2011, with the majority of its funding coming from swap markets. IFC is committed to supporting the growth of local financial markets as one of its strategic priority areas. It maintains stringent standards regarding concentration, liquidity, asset-liability, and other areas in order to live up to its AAA rating. In 2010, the International Finance Corporation (IFC) pledged around $5.7 billion in new loans, and in 2011, it increased that commitment to $5 billion.

Although the IFC’s shareholders initially only permitted it to make loans, the IFC was authorised in 1961 to make equity investments. The IFC made its first equity investment in 1962 by purchasing a stake in FEMSA, which was a former manufacturer of auto parts in Spain and is now a part of Bosch Spain. The International Finance Corporation (IFC) invests in the equity of firms either directly or through private-equity funds, often contributing between five and twenty percent of a company’s total stock. More recently, the portfolio has made investments in the Caucasus Growth Fund offered by Small Enterprise Assistance Funds (SEAF), Aureos Capital’s Kula Fund II (Papua New Guinea, Fiji, and the Pacific Islands), and Leopard Capital’s Haiti Fund. The International Finance Corporation also makes other types of equity investments, such as preferred stock, convertible loans, and participation loans. 

The International Finance Corporation (IFC) acts as a treasury by taking on debt in the form of international capital in order to finance lending activities. It is typically one of the first institutions to undertake swaps or issue bonds in emerging countries that are denominated in the local currencies of those markets. In 2010, the International Finance Corporation took on additional debt totalling $8.8 billion; in 2011, that figure increased to $9.8 billion. The IFC Treasury engages in active liquidity management in an effort to maximize returns and ensure that money for its investments is easily available while controlling risks to the IFC. This activity is carried out with the goal of managing the IFC’s liquidity.

Conclusion

Clients of the International Finance Corporation have access to financial derivative products solely for the purpose of mitigating their exposure to commodity, exchange rate, and interest rate risks. It does this by acting as a go-between for companies operating in emerging markets and the creators of international derivatives markets, with the goal of expanding access to tools for risk management.