Working of ifc, Microeconomics

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Working of IFC:

The IBRD loans are available only to member-country governments or with the guarantee of member-country governments. Further, IBRD can only make a loan but it cannot participate in the equity of the financed project. IFC was established in 1950 with the specific purpose of financing private enterprise. It is an affiliate of the IBRD. The Board of Governors of the IBRD also constitute the Board of Governors of the IBRD also constitute the Board of Governors of the IFC. But it is a separate entity with funds kept separate from those of the IBRD. 

The purpose of the IFC is to further economic development by encouraging growth of private enterprise in member-countries, particularly in the less-developed areas, thus supplementing the activities of the IBRD. The IFC, therefore:

• Invests in private enterprise in member countries, in association with private investors and without government guarantee, in cases where sufficient private capital is not available on reasonable terms.

• Seek to bring together investment opportunities, private capital of both foreign and domestic origin, and experienced management; and 

The IFC makes advances in the form of long-term loans or invests in the equity shares in a wide variety of productive private enterprises in developing countries. It particularly encourages joint ventures between developed and developing countries, the technical skill available with the former combining with the resources available with the latter. The project which IFC proposes to assist should be economically viable one and beneficial to the economy of the member-country. IFC's investment normally does not exceed 40% of the total investment of the enterprise. In case of its investment by equity contribution, it does not exceed 25% of the share capital. The interest charged on advances varies depending upon the proposal and status of the borrower.

The resources of the IFC consist of capital contributed by its members. It can also borrow from the World Bank for the purpose of lending. It can also float its own loans in world capital markets. 

The IFC had a slow beginning and much of its assistance was concentrated in Latin and Central America Countries. But in recent years it has diversified its area of operation and many developing countries stand benefited.


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