Here is an essay on ‘International Finance Corporation (IFC)’ for class 11 and 12. Find paragraphs, long and short essays on ‘International Finance Corporation (IFC)’ especially written for school and college students.

Essay # 1. Introduction to IFC:

International Finance Corporation (IFC) is the private sector arm of the World Bank. There were two glaring shortcomings related to the IBRD lending. First, it provides loans only to the member countries on the basis of the guarantee of member country. Second, the World Bank could provide fixed interest loans and not the equity capital. The need was, therefore, felt to institute a specialised financial agency to provide capital to the private sector enterprises in the developing member countries.

Consequently, the International Finance Corporation (IFC) was set up in July 1956. Its specific object is to finance the private sector projects in the less developed member countries. The World Bank draft of the IFC describes it as “an autonomous international institution designed to stimulate growth in its developing member countries, by investing in productive enterprises in association with private capital and management and without any government guarantee”.

Essay # 2. Objectives of IFC:

The main objectives of the IFC are as follows:


(i) To undertake investment in productive private enterprises, in association with private investors and without government guarantee in respect of repayment of loans in cases where sufficient private capital is not forthcoming on reasonable terms.

(ii) To act as a clearing house for bringing together investment opportunities, private capital of both domestic and foreign origin and the experienced management.

(iii) To stimulate productive investment of private capital of both the domestic and foreign origin.

(iv) To assist in the development of capital markets in the less developed countries.

Essay # 3. Membership and Organisation of IFC:


As the IFC is an affiliate of the World Bank, all the member countries of the Bank are eligible for the membership of this institution. The organisation of IFC consists of a Board of Governors, Executive Directors. The Board of Governors of the World Bank also constitutes the Board of Governors of the IFC. The President of the World Bank is also the Chairman of IFC.

The Executive Directors of the World Bank represent the member countries also at the IFC. It is on the recommendations of the Chairman that the Board of Directors of the IFC makes the appointment of its President who is responsible for the conduct of its business. Although IFC remains under the general control of the World Bank in respect of its functions or activities, yet the charter of IFC mentions that it is an autonomous legal entity having its own separate funds and accounts.


The IFC initiated its operations with an authorized capital of $ 100 million. The subscription of each member country is in proportion to its subscription towards the capital of IBRD. There is the provision for expanding the capital base of the Corporation, if it is asked by the members through a three-fourth majority. Apart from the contribution from the members, the IFC is authorised to borrow funds from the World Bank upto the extent of four times its subscribed capital for financing its lending operations.

Essay # 4. IFC and the World Bank:


It is true that IFC is the private sector arm of the World Bank, yet it differs from the World Bank in the following important respects:

(i) Similar to Private Investment Firm:

The IFC is an autonomous legal entity having its own independent capital and compact and competent staff of financial and legal experts. It operates just like a private financial or investment firm. It can even hire the consultants from outside for dealing with technical problems like market research etc.

In contrast, the World Bank has been engaged in the economic and social development of the member countries by rendering them aid even at interest rates lower than the market rates. The World Bank and IDA operations are not guided by the considerations of profitability.

(ii) Alternative Investment Options:

While the World Bank extends the fixed interest loans to the member countries, the IFC has alternative options of extending fixed interest loans and making investments in the equities. The latter can deal directly with the private enterprises in the member countries.

(iii) Degree of Resource Availability:

The World Bank has at its disposal substantial amount of funds for financing development projects and plans in the member countries. The IFC, in contrast, has limited financial resources which it offers to the private enterprises for facilitating their expansion in the LDC’s.

Essay # 5. Investment Policy of the IFC:

The IFC loans or investments are made generally on the basis of the guiding principles mentioned below:


(i) As a matter of policy, IFC does not undertake investment in projects in the advanced countries.

(ii) The project for which IFC assistance is being sought should be in the fields of manufacturing, mining and processing.

(iii) The local entrepreneurs should provide at least half of the total cost of the concerned project.

(iv) Loans of the IFC would be normally for a period of 5 to 15 years.


(iv) The rate of interest, in each case, would be determined by negotiations depending upon the degree of risk involved and other terms and conditions of investment.

(vi) Like private investors, the IFC would evaluate projects on the basis of profitability of projects.

(vii) The IFC would have the option of converting loans into capital stock of a project and appoint its members on the Board of Directors of the borrowing enterprise.

(viii) The IFC would reserve the right to dispose of capital stock at any time and to any party.


(ix) The IFC loans would be granted only if the IFC is satisfied that the borrowing enterprise has an experienced and competent management.

(x) The IFC does require no guarantee of the country where the project to be aided by the IFC, is located. However, in case the concerned government objects to the project, IFC would not render assistance for it.

(xi) The role of the IFC is to supplement and not to compete with private capital in areas where the IFC is providing finance.

Essay # 6. IFC and Developing Countries:

IFC provides loans to the private enterprises in the developing countries. It therefore assists in the vital task of reducing the capital and foreign exchange shortages and speeds up the pace of development. By the year ending June 1971, IFC had invested 577.8 million U.S. dollars in 172 projects in 47 developing countries. The gross commitments of the IFC had risen to 1.26 billion U.S. dollars by June 1975. Major part of the IFC assistance had gone for promoting development of industries such as iron and steel cement, paper, textiles, chemicals and allied industries.

By that time, IFC had assisted 249 enterprises in 57 LDC’s. Of the total amount disbursed by IFC upto June 1975, 48 percent had been provided by the United States, 23 percent by Japan, 11 percent by EEC and about 15 percent from IFC’s own resources.

Out of the total aid committed by the IFC upto June 1975, 43 percent was allocated to Latin American countries, 24 percent to Asian countries, 19 percent to European countries, 9 percent to African countries and about 5 percent to Middle East countries. In the fiscal year ending June 1993, IFC approved record 2.1 billion dollar assistance for 185 private sector projects in 54 developing countries. It marked a 20 percent increase over the previous year. The total cost of these projects was 17 billion dollars.


During the recent years, there has been considerable increase in investment demand in infra­structure development. In this field, the investment approval by the IFC was of the order of 379 million U.S. dollars in the year ending June 1993. It was up by 65 percent compared with the fiscal year 1992. According to IFC estimates, the annual demand for financing private sector projects in developing countries in 1990’s would be around 159 billion U.S. dollars.

As regards the developing countries of Asia, IFC approved financing of 521 million U.S. dollars for 39 projects in 9 Asian countries. IFC maintains that Asia holds good prospects in natural resource-based industries and with the growing openness of China and India to foreign investments, a number of projects in oil, gas, mineral and the agro-industrial sectors are likely to be financed by it in the forthcoming years.

World Bank/IFC has announced the tripling of the ceiling of trade finance guarantee in 2008-09 from US $ 1 billion to US $ 3 billion under the IFC’s Global Trade Finance programme (GTFP). It has also developed programme for providing funded support to major multilateral and regional financial institutions with wide trade finance network in emerging markets. In order to meet the demand from investors worldwide, the IFC proposes to raise resources through global bonds of the amount of $ 2 billion.

Essay # 7. IFC and India:

IFC has made a substantial contribution in financing the private sector projects in the Indian economy. By the year ending June 1975, India received 52 million U.S. dollars for 11 private sector projects in the engineering, machine tools, chemicals, textiles and some other industries.

The Annual Report of IFC for 1993 acknowledged that there was “a sea change” in India’s policies during the recent years. A high IFC official is on the record saying “we are very positive about the investment climate in India”. In the fiscal year ending June 1993, IFC provided 80 million U.S. dollars to India by way of assistance to private enterprises. In the last few years, IFC’s contribution in developing India’s power structure and capital market has been significant.

India would require about 5 billion dollars to enhance its power generation capability which is expected to increase by 10 percent in the next three years. In the fiscal year ending June 1993, IFC approved 10 projects from India costing about 600 million U.S. dollars. In addition, it approved four technical assistance and advisory projects in India. In 2007; IFC ranked India as the third largest economy of the world and made the commitment of S 1.05 billion to it for 2007.


In the financial year 2012-13, IFC invested $ 1.38 billion to achieve several strategic priorities such as promoting inclusive growth in country’s low income states, addressing climatic change and supporting global economic integration. In June 2013, India accounted for $ 4.5 billion of IFC’s committed investment portfolio, more than any other country.

IFC planned to raise $ 1 billion by selling rupee- linked bonds to help in strengthening of India’s capital markets and to attract greater foreign investment in a time of renewed economic uncertainty across the world. In August 2014, IFC declared that it would raise $ 2.5 billion rupee-denominated bonds to support infrastructure development in India.

Essay # 8. Criticisms of IFC:

The International Finance Corporation (IFC) has been criticized on account of the following reasons:

(i) Limited Assistance:

The aid rendered by the IFC is very limited and has remained far below the expectations and requirements of the LDC’s.

(ii) High Rate of Interest:


The IFC often charges a rate of interest of 6.5 to 8 percent per annum. It is considered high compared with the interest charged by IDA. Thus IFC assistance imposes higher debt burden upon the LDC’s.

(iii) Stiff Condition for Repayment:

The IFC insists that the repayment of loan and interest thereon should be made in terms of U.S. dollars. Many of the LDC’s, faced with severe foreign exchange crunch, find this condition to be stiff or harsh. The LDC’s may be permitted to repay either in their currency or in any of the principal currencies.

(iv) Negative Features of Investment Policy:

Some features of the investment policy of the IFC have been termed as negative and therefore have been criticised. Firstly, the IFC loans are extended normally for 5 to 15 years. The period for repayment needs to be enlarged. Secondly, the local entrepreneurs in the borrowing countries are required to meet 50 percent of the cost of the project.

Some relaxation may be made in this respect. Thirdly, the loan-seeking enterprises must have experienced and competent management. No doubt, this condition is important but in context of the LDC’s, the borrowing enterprises, not fulfilling this condition, should not be considered ineligible for aid. They should rather be rendered technical advice to achieve the desired degree of managerial competence.


Despite the above objections related to the functioning of IFC, this institution has been making highly useful contribution in the growth of private industrial sector in the less developed countries.