IFI governance


IEG faults IFC poverty focus

14 June 2011

An April report by the Bank’s arms-length evaluation unit faults the International Finance Corporation (IFC), the Bank’s private sector arm, for failing to pay enough attention to how its promotion of private sector growth impacts the poor.

The report by the Independent Evaluation Group (IEG), Assessing IFC poverty focus and results, examined a random selection of 481 IFC projects over a ten year period from July 1999 to June 2010. The aim was to “examine how projects addressed growth and distributional issues,” with the report making a distinction between economic growth overall – the “pace of growth” – and whether that growth “enhances the ability of poor women and men to participate in, contribute to, and benefit” – the IEG calls this the “pattern of growth”.

On this latter issue, the report finds that “fewer than half the projects reviewed included evidence of poverty and distributional aspects in project objectives, targeting of interventions, characteristics of intended beneficiaries, or tracking of impacts.” More shockingly, only “13 per cent of projects had objectives with an explicit focus on poor people”, while just “6 per cent of projects explicitly identified gender issues in project design and only 3 per cent analysed a project’s potential effects on women’s assets, capacities, and decision making.” This echoes previous critiques of the IFC’s poverty focus made by civil society groups (see Update 73, 70). This is despite the fact that “projects that paid attention to distribution issues performed as well, if not better than, other projects on development and investment outcomes; this suggests that poverty focus need not come at the expense of financial success.”

The fact that “of 211 nonfinancial sector projects, 86 per cent reported [economic rates of return] of more than 15 per cent” will bolster critics who claim that the IFC prioritises financial returns over development impact (see Update 70, 62).

However, overall, the IEG buys into the IFC’s assumption that “achieving satisfactory economic returns suggests that [projects] make a positive contribution to growth and therefore, most likely, to poverty reduction.”

This despite recommending that the IFC “needs to move beyond a company-by-company orientation toward a focus on achieving broader development impact.”  There is no reflection on how the positive or negative contribution to growth made by a company’s financial success will depend on factors such as social and environmental impacts, contribution or otherwise to national strategies, impacts on governance, tax evasion or a wide range of other issues highlighted in previous critiques of the IFC’s approach to the private sector (see Update 73 70).

The report praises the fact that the “IFC is also targeting sectors with the potential for widespread engagement of the poor”.  On the controversial impacts of the IFC’s investment through financial intermediaries (see page 2), the IEG notes that “investments are highly concentrated in the [Global Trade Finance Program]” (see page 5) where “the development and poverty impacts of these interventions have not [yet] been assessed at the project level.”

Bad advice?

The findings on the IFC’s provision of advice and technical assistance through its advisory services (see Update 71, 62) are similarly disappointing. The IEG notes that “advisory services have been the primary vehicle for IFC’s interventions in the poorest countries and those with more difficult and challenging business environments” and that “access to finance is the largest business line.” However, the IEG reviewed a random sample of 98 closed advisory service projects and found that only “10 per cent delivered benefits to the poor and 40 per cent delivered benefits to society but did not provide evidence of enhanced opportunities to the poor.” Furthermore, “about one-third provided evidence of alleviating market failures or distortions that inhibit participation of poor people in markets and other growth opportunities.” The IEG’s caveat is that this “may reflect difficulties in capturing poverty outcomes from projects where the main deliverable is knowledge, a product that is intangible and very difficult to measure.”

Adding to the IEG’s previous criticisms of the IFC’s monitoring and evaluation (see Update 74, 66, 63) the report found that the “IFC’s evaluation framework does not quantify benefits to poor and vulnerable groups and thus has no specific indicator for measuring a project’s poverty effects.”

Despite noting that the “IFC increased the volume and share of investments to [low-income] IDA countries” and “the share of total commitments in IDA countries rose from 19 to 31 per cent from 2001 to 2010”, the IEG argues that “these investments need to be allocated in more that the few IDA countries where they are currently allocated.”

The IEG recommends that the IFC focus much more explicitly on poverty impacts in its goal setting, monitoring, evaluation and reporting. This includes thinking “carefully about questions such as who the poor are, where they are located, and how they can be reached.” The management response welcomed the report’s recommendations, but argued that existing initiatives, such as the creation of a new department for development impact, mean that the IFC is already tackling the issues raised.