Institutional transformation during a time of polycrisis: Six opportunities to strengthen the delivery of IFC 3.0

For the past six years, the IFC - International Finance Corporation (IFC) has been striving to implement IFC 3.0, a new institutional vision that focuses on creating markets and expanding opportunities for private sector-led development. IFC 3.0 has involved important changes to IFC's business model, including greater emphasis on delivering #developmentresults, enabling investment in challenging contexts and implementing new approaches to address risk and crowd-in private capital in the most challenging markets.???

Delivering IFC 3.0 has required a large-scale shift in the Corporation’s skills, processes, tools and corporate incentives – all implemented amidst a challenging and complex development context, most notably the macroeconomic challenges arising from the #COVID19 pandemic and the war in Ukraine. MOPAN's assessment of IFC, identified as a priority among its members, has been implemented to take stock of IFC's transformation and identify the progress achieved in delivering on IFC 3.0 as the Corporation's new strategic vision.???

As a Network that has conducted 100+ assessments of over 40 different multilateral organisations in the past 20 years, MOPAN members commissioned an assessment of IFC—the first time a private-sector facing organisation has been assessed. This involved a joint effort between MOPAN, IFC and the European Bank for Reconstruction and Development (EBRD) to ensure the assessment’s framework accurately reflected current challenges for promoting private sector-led development. ?MOPAN published the findings from this assessment after its launch event, held on Monday in Washington, DC.??

“As IFC continues to deliver on IFC 3.0, Makhtar Diop has a lot of positive momentum to build upon.”??

IFC has made good progress in implementing new tools and approaches such as Country Private Sector Diagnostics (CPSDs), the upstream approach and the Anticipated Impact Monitoring and Measurement (AIMM). These innovations seek to enable and expand investment in challenging markets with an enhanced focus on projects that are likely to yield development results and market impacts.???

The IDA Private Sector Window has not only helped expand investment in Low-Income Countries and fragile contexts but has also helped consolidate expertise and drive good practices for the use of #blendedfinance. Furthermore, it has supported IFC's continued leadership among Development Finance Institutions for private capital mobilisation. Throughout the last six years, IFC’s performance in delivering development results through investment and advisory services has become stronger and its clients have reported consistently high levels of satisfaction with the services it provides.???

However, delivery of IFC 3.0 has also faced some important challenges due to a complicated global context, including slower than anticipated portfolio growth and lower than expected loan and fee income. This has led to IFC temporarily exceeding targets its administrative budget coverage ratio. As the impacts of the COVID-19 pandemic and war in Ukraine have eased, IFC transformation is now starting to yield its full results, including strong growth in commitments, conversion of upstream work to committed lending and record levels of mobilisation.???

The assessment praised IFC for strong #performance with respect to leadership for cross-cutting themes, a capital adequacy framework and procedures regarded IFC as “best in class” and systematic processes for internal control, results monitoring and operational risk management. ??

As IFC continues to implement IFC 3.0, Makhtar Diop has a lot of positive momentum to build upon. The MOPAN assessment offers insights on six opportunities for IFC to finetune the delivery of IFC 3.0 and thereby strengthen their contribution to the The World Bank Group's new mission and vision and promote private sector-led development to address global challenges.???

1. Positioning knowledge as a strategic asset through stronger knowledge management: Knowledge is essential for delivering IFC's vision of scaling up investment in challenging markets. Following the introduction of several tools, platforms and initiatives in recent years, IFC should now formalise its approach through an approved strategy. This would create clear accountabilities and incentives to apply operational lessons to new investments.??

1. Strengthening delivery of non-financial additionality: IFC has identified a new additionality framework that is considered good practice; however, it lacks systems for demonstrating how expected non-financial additionality is delivered through its investments and advisory work. Non-financial additionality is particularly important for promoting high standards and adding value through investments in Middle Income Countries (MICs).?

1. Updating IFC's Performance Standards to reflect emerging challenges such as Sexual Exploitation and Abuse (SEA): Despite being the de facto standard for management of environmental and social risk for private sector operations, the Performance Standards have not been updated for 12 years. New guidance notes have been introduced to cover emerging issues such as SEA, but these lack the binding legal nature of the Performance Standards. IFC should also continue to strengthen monitoring of client grievance mechanisms to ensure that any harms to project stakeholders are identified, mitigated and addressed.???

1. Reinforcing development results in fragile contexts: Driving investment and development results in challenging and fragile contexts is central to IFC 3.0, yet the achievement of development results in fragile contexts has been declining over time. IFC should identify why this decline is occurring and implement lessons learned to reverse this trend.??

1. Leveraging AIMM to contribute to outcome-level reporting for cross-cutting issues, including climate change: Most Multilateral Development Banks (MDBs) struggle to demonstrate results for cross-cutting themes such as gender and climate beyond finance and outputs. However, AIMM contributes to systematic monitoring of results for cross-cutting issues throughout implementation. This could provide an important good practice to build upon in MDBs’ joint efforts to scale up monitoring and harmonised ex-post reporting on climate outcomes following #COP28.??

1. Enhancing incentives for a “One Bank Group” approach to promote an enabling environment for investment: MOPAN's assessment of IFC echoes findings from our earlier IDA/IBRD assessment indicating that more systematic collaboration is needed across the World Bank Group. Existing Country Partnership Frameworks do not go far enough in reflecting IFC’s operating context and the Cascade Approach is not implemented systematically across projects. This is an issue that neither IFC nor the World Bank can address in isolation. Consideration must be given to creating strong institutional incentives for ongoing collaboration that is positioned to promote an enabling environment for private sector-led development.???

?For further MOPAN findings on IFC, visit: bit.ly/MOPAN_IFC?

#MOPANonIFC #developmentfinance #globalgoals??

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