THE FIRST SIX DECADES 1956 LEADING THE WAY IN PRIVATE SECTOR DEVELOPMENT 1950s-1960s 1970s 1980s 1990s 2000s 2010s A HISTORY 2016 THE FIRST SIX DECADES LEADING THE WAY IN PRIVATE SECTOR DEVELOPMENT A HISTORY THE INSTITUTIONS OF THE WORLD BANK GROUP THE IBRD IDA WORLD INTERNATIONAL BANK FOR INTERNATIONAL DEVELOPMENT RECONSTRUCTION AND DEVELOPMENT ASSOCIATION lends to governments of provides interest-free loans—called BANK middle-income and creditworthy low-income countries. credits—and grants to governments of the poorest countries. GROUP Together, IBRD and IDA make up the World Bank. is one of the world's largest sources of funding and knowledge for developing countries, consisting of five institutions with a common commitment to reducing poverty, increasing shared prosperity, and promoting sustainable development. IFC MIGA ICSID INTERNATIONAL FINANCE MULTILATERAL INVESTMENT INTERNATIONAL CENTRE FOR CORPORATION GUARANTEE AGENCY SETTLEMENT OF INVESTMENT DISPUTES is the largest global development was created in 1988 to promote provides international facilities institution focused exclusively foreign direct investment into for conciliation and arbitration of on the private sector. It helps developing countries to support investment disputes. developing countries achieve economic growth, reduce poverty, sustainable growth by financing and improve people’s lives. MIGA investment, mobilizing capital in fulfills this mandate by offering international financial markets, political risk insurance (guarantees) and providing advisory services to investors and lenders. to businesses and governments. TABLE OF CONTENTS INTRODUCTION PROLOGUE DECADES 1–3 MESSAGE FROM THE EXECUTIVE VICE PRESIDENT AND CEO 8 ORIGINS OF IFC 22 BEGINNING WITH INNOVATION ABOUT IFC 9 1950s–1960s, IFC'S MANDATE 10 1970s, 1980s 30 IFC CEOs: A CHRONOLOGY 11 CHAPTER 1: EVOLVING THE APPROACH 32 IFC HISTORY IN A NUTSHELL 12 CHAPTER 2: THE IFC BRAND 14 STRENGTHENING THE FINANCIAL SECTOR 42 IFC BY THE NUMBERS 15 CHAPTER 3: THE EVOLUTION OF IFC'S IMPROVING THE INVESTMENT CLIMATE 54 BRAND VALUE PROPOSITION 17 CHAPTER 4: TIMELINE: IFC'S SIX DECADES BUILDING GLOBAL OF EXPERIENCE 18 AND REGIONAL LEADERS 62 DECADES 4–5 DECADE 6 EPILOGUE INCREASING DEMONSTRATION CREATING INFLUENCE AND OPPORTUNITY 1990s–2000s 72 IMPACT WHERE IT’S CHAPTER 5: 2010s 100 NEEDED MOST 134 BROADENING THE CHAPTER 7: PRIVATE SECTOR'S ROLE 74 INNOVATING FOR INCLUSION 102 CHAPTER 6: CHAPTER 8: SETTING STANDARDS PROVIDING NEW PLATFORMS 110 FOR SUSTAINABILITY 86 CHAPTER 9: WORKING IN THE FRONTIERS 122 MESSAGE FROM THE EXECUTIVE VICE PRESIDENT AND CHIEF EXECUTIVE OFFICER Great challenges require great solutions. countries establish the basic conditions necessary for entrepreneurship to thrive and prosperity to take root. 2016 marks the first year of implementation of the Across the world, we helped our clients see the benefits Sustainable Development Goals—a global initiative of social inclusion—particularly gender equality—and that depends on the collective ability of governments environmental sustainability. and the private sector to mobilize trillions of dollars a year to advance prosperity and peace. It’s a year in We did all of this profitably—and we channeled the which investors are growing increasingly risk-averse profits back into poorest countries. Since 2007, IFC toward emerging markets. It’s a year in which conflict has contributed more than $3.5 billion of its income and violence are displacing and impoverishing millions. to support the work of International Development Association (IDA), a World Bank Group institution that IFC was created for challenges of this kind. Sixty makes grants to the poorest countries. years ago, our founders set us on a course to “create conditions conducive to the flow of private capital” Today, conventional sources of development finance in less developed areas of the world—to intervene are constrained. But far larger unconventional ones wherever “sufficient private capital is not available on remain untapped. Global institutional investors have reasonable terms.” We’ve been doing so ever since— an estimated $70 trillion of assets under management, venturing ever more deeply into the world’s toughest of which only a tiny fraction reaches the developing markets. world. It’s our job to find new investment outlets for this massive pool of capital, working with the World Throughout, we have adapted to meet the needs of the Bank, IMF, and other partners on policy and regulatory times. Initially, we helped bring leading multinational reforms that will help create new markets and companies to developing countries. As businesses in opportunities. these countries began to thrive, we moved our people and offices closer to them—to help them promote Our history puts us in a unique position to take on this prosperity in less-developed areas of the world. In doing future agenda. so, IFC built up an unmatched body of knowledge and experience in sustainable private sector development. We learned how to do difficult things in the most diffi- cult places. We began to deliver advice alongside our investments, helping the poorest and most strife-ridden PHILIPPE LE HOUÉROU 8 IFC: THE FIRST SIX DECADES ABOUT IFC IFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in developing countries. Established in 1956, IFC is owned by 184 member countries, a group that collectively determines its policies. IFC has six decades of experience in the world’s most challenging markets. With a global presence in more than 100 countries, a network consisting of hundreds of financial institutions, and more than 2,000 client firms, IFC has been leading the way in private sector development. This is its story. 9 IFC: THE FIRST SIX DECADES IFC ARTICLES OF AGREEMENT IFC'S MANDATE The International Finance Corporation (hereinaf- ter called the Corporation) is established and shall operate in accordance with the following provisions: ARTICLE I IFC’s charter, the Articles of Agreement, provides Purpose the basis for its work in "encouraging the growth of The purpose of the Corporation is to further economic productive private enterprise" in three broad ways: development by encouraging the growth of productive private enterprise in member countries, particularly in the INVESTING less developed areas, thus supplementing the activities of the International Bank for Reconstruction and Development ALONGSIDE OTHERS (hereinafter called the Bank). In carrying out this purpose, in private enterprises that contribute to the Corporation shall: development without government guarantees MOBILIZING (i) in association with private investors, assist in financing the establishment, improvement and expansion of produc- CAPITAL FROM OTHERS tive private enterprises which would contribute to the devel- opment of its member countries by making investments, by bringing investment opportunities without guarantee of repayment by the member government to investors concerned, in cases where sufficient private capital is not available on reasonable terms; ADVISING to help stimulate private capital flows and (ii) seek to bring together investment opportunities, domestic improve the investment climate and foreign private capital, and experienced management; and (iii) seek to stimulate, and to help create conditions condu- cive to, the flow of private capital, domestic and foreign, into productive investment in member countries. The Corporation shall be guided in all its decisions by the provisions of this Article. 10 IFC: THE FIRST SIX DECADES IFC CEOs: A CHRONOLOGY MARCH 2016 – PRESENT 2012 – 2016 2006 – 2012 1999 – 2005 PHILIPPE LE HOUÉROU JIN-YONG CAI LARS H. THUNELL PETER L. WOICKE 1994 – 1998 1984 – 1994 1981 – 1984 1977 – 1980 JANNIK LINDBAEK SIR WILLIAM RYRIE HANS A. WUTTKE MOEEN QURESHI 1974 – 1977 1969 – 1974 1961 – 1969 1956 – 1961 LADISLAUS VON HOFFMAN WILLIAM S. GAUD MARTIN M. ROSEN ROBERT L. GARNER 11 IFC: THE FIRST SIX DECADES W IFC HISTORY IN A NUTSHELL This is a story of experience—an unparalleled body of knowledge built up in the toughest markets, under the most challenging conditions, and applied to address the world’s most urgent devel- opment challenges. Six decades ago, a few dozen countries made a calculated bet on the transformative potential of the private sector in developing countries. They put up $100 million in capital and established IFC to reinforce the work of the World Bank in spurring growth and development. Today, IFC is the largest global development institution focused on the private sector, having delivered nearly $250 billion in financing to businesses in emerging markets. Throughout its history, IFC has introduced new approaches to meet the needs of developing countries. Initially, it helped to bring leading multinational companies to developing countries— beginning in 1957, when IFC invested alongside Siemens in Brazil. In addition, as businesses in these countries began to thrive, IFC deployed its staff to local markets to be closer to clients. Over time, IFC helped drive growth by providing investment and advice, and by mobilizing resources from other capital providers. IFC consistently brought to bear a distinctive set of advantages in working with the private sector to end extreme poverty and boost shared prosperity—a history of innovation, a mandate for global influence, an understanding of the demonstration effect of its actions, and a determination to achieve measurable development impact. 12 IFC: THE FIRST SIX DECADES SIX DECADES OF EXPERIENCE HAVE TAUGHT IFC… How to maximize development impact and • business results in the toughest social, political, and financial environments. • How to mobilize and leverage capital beyond its own resources, attracting private investors that otherwise might not invest in riskier markets. How to build partnerships that create markets, • expand economic opportunity, and push the boundaries of social and environmental stewardship. Those capabilities have made IFC a key player in global efforts to address shared challenges such as climate change and pandemics. IFC plays a prominent advisory role in major initia- tives of the United Nations and the Group of 20 nations. It acts as a trusted liaison between the public and private sectors, bringing business solutions to the challenges of development. Today, the challenges of development are simultaneously global and local. Trillions of dollars must be mobilized each year if the world is to achieve the Sustainable Development Goals—including ending poverty—by 2030. Poverty is increasingly concentrated in fragile and conflict-affected areas of the world, where it is hardest to eradicate. Climate change threatens to force tens of millions of people in developing countries into poverty. IFC is uniquely positioned to leverage the capabilities of the private sector to address these challenges. Six decades of experience and a record of innovation and thought leadership in private sector development have made the organization essential for creating opportunity where it’s needed most. 13 IFC: THE FIRST SIX DECADES THE IFC BRAND IFC has built up a strong brand identity over six decades of experience. The corporate brand is 1956 In the early years the name was fully expressed in the logo—adding IFC’s acronym, full spelled out on report covers, supported name, and World Bank Group affiliation alongside by the official legal seal rather than a logo. the World Bank Group’s globe and using its colors. The acronym and relationship to the World Bank were included in all communications from the outset. In use since 2014, the current logo is in turn part of a larger visual identity system that also includes colors, typefaces, and implementation guidelines 1961 In the 1960s IFC began using an early logo, applied consistently to all communications material combining the acronym and the full name. as part of IFC’s brand management. IFC’s visual depiction has evolved considerably 1969 over the years, with today’s logo the culmination Starting in 1969, the logo was modified, adding the affiliation to the World Bank of several other usages that appeared on earlier Group (a term that was first used in annual report covers and other marketing materials the 1960s). during different eras of IFC history. The years marked at right show the first year these logos appeared on annual report covers. 1973 For more than two decades starting in 1973, the IFC acronym was primarily used alone, generally in blue and at times adding the full name. 1993 Starting in 1993, an enclosed globe was added to the logo. 2005 In 2005 the enclosed globe element was modified further, increasingly using blue as the primary corporate color. 2014 The current IFC logo was adopted as part of a larger new World Bank Group visual identity system. 14 IFC: THE FIRST SIX DECADES IFC BY THE NUMBERS $200 billion: in financing for IFC’s own account • delivered to businesses in emerging markets. $50 billion: mobilized by IFC’s loan-syndications • program from more than 500 financing partners in over 115 emerging markets. $7 billion: raised from other investors by IFC • Asset Management Company. $1.3 billion: value of IFC’s advisory portfolio, • including over 700 projects in about 100 countries. $3.5 billion: contributed to International • Development Association since 2007. $2.56 billion: growth of paid-in capital from • $100 million in 1956. $19.5 billion: in local-currency financing • provided across 71 currencies. $1.4 billion: raised through issuance of green • bonds as of FY16 end. • 3,757: staff from more than 140 countries, with more than half located outside the United States. • 104: offices in 98 countries, with more than 2,000 private sector clients. (Note: some numbers are approximate) 15 IFC: THE FIRST SIX DECADES Creating Opportunity Where It's Needed Most: A tagline summing up IFC's vision, introduced in 2007 and used ever since. 16 IFC: THE FIRST SIX DECADES THE EVOLUTION OF IFC'S BRAND VALUE PROPOSITION For six decades, IFC has steadily adapted to meet During this period, IFC also redefined its own story the evolving needs of emerging markets. Its ongoing to become the story of those whose lives it improves. growth—and increased delivery of investment, Its story was their story. Poised at the intersection advice, and development impact—reflects an endur- of innovation and impact, IFC was showing that ing ability to adjust its business model to address it was uniquely positioned to make a difference the changing needs of the times. in the 21st century, boosting the private sector’s essential role in addressing the greatest development Although mandated from the outset to invest, advise, challenges of the day. IFC had become the world’s and mobilize capital for private sector development, leading global development institution focused on IFC began in 1956 with a primary emphasis on the private sector, working with clients to provide loans. Equity investment and loan syndication solutions to challenges that cannot be solved by functions were soon added. As more countries government alone. joined IFC and demand increased, a wider array of other products was introduced: expanded advi- By 2011 IFC had further refined its brand value sory services, new knowledge-based services, and proposition—Innovation, Influence, Demonstration, a broader range of investment vehicles. and Impact—and focused more on leveraging the power of partnerships in seeking transformational Along the way, IFC’s global network of clients and results. partners grew dramatically—as did its financial resources and breadth of staff skills. By the time Today, IFC’s work continues to evolve, supporting of its 50th anniversary in 2006, this growth had an ambitious global agenda that is moving from considerably enhanced IFC’s ability to deliver on billions to trillions in financing for development. its founding vision. Ultimately, what distinguishes IFC in the market- In 2007 IFC summed up its vision for the new mil- place is its role as a Bretton Woods institution—a lennium in a single phrase: Creating opportunity for World Bank Group member with unique depth of people to escape poverty and improve their lives. knowledge and experience that is well positioned Two years later, this vision grew into a defining to help create and develop new markets. corporate tagline, Creating opportunity where it’s needed most. It has remained in place ever since. 17 IFC: THE FIRST SIX DECADES SIX ORIGINS 1947 World Bank President John DECADES J. McCloy appoints New York financier Robert L. Garner as vice president of the Bank. OF EXPERIENCE INNOVATION GLOBAL CONTEXT 1945: 1947:  WWII ends in a Indian INFLUENCE divided Europe independence from the U.K. DEMONSTRATION 1945: Soviet-occupied countries adopt & IMPACT command economies 1957 1959 1960 1961 I  FC’s first loan: First syndication: IFC First investment IFC’s charter amended $2 million to help mobilizes $2 million from a in Africa: a $2.8 to allow equity invest- Siemens’ Brazilian group of banks for Brazilian million loan package ments—in time, a key affiliate manufacture pulp and paper company for Kilombero Sugar to its profitability. electrical equipment. Champion Celulose. Co. in Tanzania. 1957: European Economic Community created; Ghana becomes first Sub-Saharan African country to gain independence. 1973 1974 1976 First housing finance project: IFC's $17.3 million investment First SME finance project: IFC becomes a founding share- and advice to Republic of Korea's $2 million loan for Kenya holder in start-up Davivienda of LG Electronics helps it become Commercial Bank to lend to Colombia, then adopts that same one of the first globally competitive smaller local companies. model in 1978 with HDFC in India. emerging-market companies. 1973: 1975: 1976: Chile begins gradual End of Vietnam War Apple founded transformation from 1975: 1979: statist to a liberalized, Microsoft founded Deng Xiaoping begins reforms world-integrated economy to open China’s economy 18 IFC: THE FIRST SIX DECADES 1948-49 Garner and colleagues propose a new institution to stimulate private 1950s-60s 1956 IFC opens under Garner’s leadership with investment, working alongside others $100 million in capital. and taking full commercial risk. 1948: 1950–1953: 1956: Israel created Korean War Morocco becomes first North African country 1949: 1955: to gain independence People’s Republic IBM invents the from France of China created first hard disk (5 MB) 1962 First equity investment: about $500,000 stake 1970s 1971 IFC Capital Markets Department created 1972-74 Advisory services and field offices: for the first time IFC in Spanish auto parts to strengthen local banks, sends experts to Jakarta to manufacturer Fábrica stock markets, and other help build the country's first Española Magnetos. financial intermediaries— securities markets. which eventually become IFC’s largest area of emphasis. 1962: 1973: Cuban Missile Crisis OPEC oil crisis begins vast wealth transfer to 1968: oil-producing nations Prague Spring 1969: Apollo 11 moon landing 1980s 1980 First investment in Tata Group, India: Tata Iron 1981 IFC coins the phrase “emerging markets”— changing the financial world’s perception of 1984 IFC launches the first publicly traded emerging market and Steel Company borrows developing countries and defining a new asset country fund, the NYSE-listed $38 million from IFC. class. Korea Fund. IFC creates the Emerging Markets Data Base—basis of the world's first emerging markets stock index. 1982: 1984: Debt crisis begins Privatization era begins with in Latin America, Thatcher government’s sale leading to a “lost decade” of British Telecom 19 IFC: THE FIRST SIX DECADES 1985 IFC provides investment- 1988 Amid the Latin American debt crisis, 1989 IFC receives its first triple-A credit rating— 1990s 1990 IFC designs Poland's climate reform IFC helps several key to a major multi- Multi-Track advice to China, Mexican conglom- currency borrowing Privatization leading to the erates reduce their program that by 2016 Program. creation of FIAS, debt, leading to the tops $15 billion a year. IFC's largest multi- creation of IFC's first donor trust fund. advisory department, FIAS continues Corporate Finance to operate in 80 Services. countries today. GLOBAL CONTEXT 1989: 1990: 1991: Fall of Berlin Wall Nelson Mandela Fall of the freed in South Africa Soviet Union 1991: India launches market-based reforms 2000s 2002 Amid worsening economic condi- 2003 Leading commercial banks launch the Equator Principles, 2004 IFC launches its first large-scale gender tions in Argentina, modeled on IFC’s own initiative, encouraging IFC starts a series standards. projects to help local of countercyclical women-owned businesses. investments, IFC and World Bank publish first beginning with Doing Business report, helping IFC oversees creation of $60 million for establish a global benchmark the Emerging Market agribusiness client for countries to improve their Private Equity Association, AGD. investment climate. or EMPEA. 2000: 2001: 2002: 2004: Millennium Development Goldman Sachs Euro notes and Argentina’s sovereign Goals launched at a economist Jim O’Neill coins go into effect debt default United Nations summit coins the acronym 2004: 2001: BRICs to refer to Brazil, Facebook founded September 11 attacks Russia, India, and China 2009 Having decentralized to be closer to its clients, IFC has more than 2010s 2010 IFC launches a private sector window in the $1.25 billion 2012 A year after conflict ends in Côte d’Ivoire, 50 percent of its staff in the field Global Agriculture and Food IFC finances the expansion for the first time. Security Program (GAFSP), a of the country’s largest new World Bank Group initiative thermal power plant, IFC Asset Management formed at the G-20’s request. Azito. Company is founded. By 2016, it will have raised more than $7 billion in investor funds. 2011: Arab Spring begins 20 IFC: THE FIRST SIX DECADES 1992 1996 1998 IFC coins the phrase “frontier markets.” IFC enters the microfinance sector with a $3 million IFC adopts new environmental stake in ProFund, which is focused on Latin America and and social review procedures and IFC leads one of Russia’s first privatization the Caribbean. safeguard policies. (later renamed programs, auctioning 2,000 businesses the Performance Standards). in Nizhny Novgorod. In one of our first investments in a conflict-affected state, IFC helps launch Bosnia’s microfinance pioneer Responding to the Asian financial (now ProCredit Bank). crisis, IFC begins a five-year, nearly $1 billion countercyclical IFC leads Africa’s largest privatization: the $70 million investment and advisory package sale of the government’s stake in Kenya Airways to KLM. to strengthen clients in Korea. 1993: 1995: 1997: 1998: European Union UN World Conference Asian financial crisis Russian financial crisis created on Women sets global 1998: agenda for gender equality 1994: Google founded NAFTA takes 1995: 1999: effect, increasing Widespread commercial Anti-globalization protests US-Mexican- use of the Internet begins at WTO meeting in Seattle Canadian trade 2005 2006 2007 2009 Launch of IFC's New Performance Our $5 million investment in The G-20 launches its Financial Global Trade Standards adopted. FINO, a start-up Indian IT firm, Inclusion initiative, naming IFC Finance Program. helps expand access to finance its SME finance adviser. for people in rural areas. Responding to the global financial crisis, IFC provides €2 billion to an international effort to maintain commercial bank lending in Central and Eastern Europe. 2006: 2007: Microfinance Al Gore documentary An leader Muhammad Inconvenient Truth wins an Yunus wins Nobel Academy Award, focusing world Peace Prize attention on climate change 2008: Global financial crisis begins 2013 2014 2015 Launch of the World Bank IFC’s first offshore IFC plays a key role in highlighting the importance of the private Group’s twin goals—ending Masala bond in sector in achieving the Sustainable Development Goals. extreme poverty and boosting Indian rupees issued shared prosperity. in London. The As part of the coordinated World Bank Group response to program has now the Ebola crisis in West Africa, IFC provides $225 million The People’s Bank of China pledges grown to $3 billion. to help local banks maintain lending to local SMEs. $3 billion to IFC’s new Managed Co-Lending Portfolio Program, A thought leader at historical international climate becoming the new syndications change talks in Paris, IFC showcases emerging-market program’s first investor. clients with innovative climate-smart solutions. 2013: 2015: Emerging markets account Launch of Sustainable for more than 50 percent of Development Goals world GDP for the first time 2015: 3.2 billion Internet users and even more mobile-phone accounts worldwide 21 IFC: THE FIRST SIX DECADES IFC founder Robert Garner. PROLOGUE ORIGINS OF IFC 1956: Robert Garner takes the helm at the newly launched IFC. 24 ORIGINS OF IFC M arch 1947: New leadership arrives at the that few others shared at the time. “It was my firm World Bank, a first-of-its-kind institution conviction that the most promising future for the founded along with the International Monetary less-developed countries was the establishing of good Fund just three years earlier at the historic Bretton private industry,” Garner recalled in his 1972 memoirs. Woods conference, and operating since June of 1946. It was a big goal—one that he knew would require It was the early post–World War II era. A new period “a new approach, if we were going to be influential.” of international cooperation was just beginning—one needing a central nexus point, providing intellectual THE CONTEXT OF IFC'S CREATION and financial resources at a significant scale to help countries rebuild, re-engage, and move forward. It was clear at the time that private sector development was being restricted by several factors. There was a From the outset, this new entity—formally called serious lack of both domestic savings and the institutions the International Bank for Reconstruction and and incentives necessary to channel what savings there Development—was to be global in nature. “In a world were into productive ventures. dominated by nation-states,” its official historians wrote 50 years later, “the new Bank was indeed a Local entrepreneurs with promising businesses multilateral institution: It was owned and governed frequently could not find the necessary capital for by national governments, but it was not formally or launch or expansion. Managerial and technical skills legally the creation of any of them.” were scarce, and there was little opportunity to acquire industrial expertise. The ability to identify, define, and The new president starting work at the World Bank implement investment projects was severely limited. that day in March 1947 was prominent New York Foreign direct investment from industrialized economies attorney John J. McCloy, whose predecessor departed was also small. Aside from the extractive industries, after leading the institution through its earliest most businesses from wealthier nations typically had months. As his vice president, McCloy brought a no knowledge of the opportunities in the developing man of bold and singular vision: Robert Garner, a world, and many of those that did were hampered by senior financial executive at General Foods Corp. in risk perceptions. New York who had been recommended by Morgan Stanley co-founder Harold Stanley. It was a time, then, of serious structural problems that distorted and restricted the allocation of private Working closely together, McCloy and Garner led the capital and expertise so essential to creating jobs and World Bank’s initial lending to governments, beginning reducing poverty in developing countries. The recog- with a $250 million reconstruction loan to France nition of these problems defined what would become just two months after they arrived. The first loan to the most important dimension of IFC’s operations—its a developing country followed the next year—$13.5 catalytic role. million for hydropower development in Chile. From the beginning, Garner viewed IFC as a means to In doing this groundbreaking work alongside McCloy, stimulate private investment, acting as a catalytic agent Garner brought a keen sense of the role private busi- in the chemistry of entrepreneurship, investment, and ness could play in international development, one production. He recognized that IFC should not compete 25 IFC: THE FIRST SIX DECADES THE WORLD 1955 1955 TAKES NOTE 1955 1956 26 ORIGINS OF IFC against or replace private capital, and would never be sustainability. Garner’s early leadership was critical. a panacea for the problems of development. However, Reflecting later on these initial days, Garner’s chief IFC’s First IFC could be one of many tools brought to bear on aide, Richard Demuth, called him a man not just of Headquarters: Inside the those problems. “tremendous work, but tremendous toughness,” one World Bank, who always insisted that “we operate not as a public Washington, DC. This became the blueprint for a new institution that institution, but as a business institution.” could finance private enterprise without the World Bank’s requirement for government guarantees. Garner and his colleagues made the case persistently for several years, gradually winning over the skeptics—and in the process establishing a culture of long-term commit- ment and dedication to the cause that would become a lasting hallmark of IFC. “I missed no opportunity during my travels of promoting the idea with top government officials,” he later wrote. BUILDING MOMENTUM A major political boost came in March 1951 from Nelson Rockefeller, a former U.S. Assistant Secretary of State and grandson of the world’s wealthiest man, oil tycoon John D. Rockefeller. Chairing an influential U.S. presidential advisory board in international devel- opment, the younger Rockefeller urged the forma- tion of “an International Finance Corporation” to support local private enterprise as part of a larger set of recommendations. This proposed IFC would support development by making loans to private busi- nesses in developing countries, but only on the condi- tion that it would take no government guarantees, always work alongside other private investors, and never manage its investee companies. U.S. President Harry Truman quickly endorsed the idea. After four years of negotiations, IFC won acceptance from the World Bank’s board of country shareholders in 1955, opening in 1956 with Garner at the helm. IFC began with a staff of only 12 people, $100 million in initial capital, and no authorization to make the equity investments that Garner desired and that would later be key to IFC’s unique impact and financial 27 IFC: THE FIRST SIX DECADES THE FOUNDING VISION “The view of management was that if these coun- tries were really going to develop…the only way they were going to really increase the production of goods and have people get more jobs, raise the standard of living, and build up their countries was through the development of private enterprise, industry, and agriculture. “After a few years, some of us began to realize that the Bank was not the best type of instrument to finance purely private business. We began to work on the idea of a separate institution affili- ated with the Bank, but with separate capital and separate organizations which could deal directly with private industry. It took about seven or eight years to get the idea accepted, but finally it was in 1956, and IFC was set up: the principle was that it would operate in conjunction with private busi- ness and in partnership if possible with private investment capital. “Just as I felt private business has been largely responsible for everything built in my country, it was the thing that could be the most important element in the economic growth of these other countries. "IFC will be able to do a great many constructive things that no public institution is doing.” WORLD BANK/IFC ARCHIVES ORAL HISTORY PROGRAM INTERVIEW WITH ROBERT L. GARNER, JULY 19, 1961 28 ORIGINS OF IFC GROWING SUPPORT Though IFC would grow dramatically over time, Garner knew all too well that it would never have enough Chile, 1956: money to make a major difference strictly with its Robert Garner (second own investments. The goal was always to serve as an from right), honest broker and lead the way in attracting much leads IFC’s larger pools of capital from other private investors. first overseas mission. This defining mission remains intact today. Business leaders in the poorer countries embraced the idea. “The dynamic force of private enterprise is strengthened considerably by initiatives such as IFC,” Brazilian CEO Vicente De Paula Ribeiro said at an IFC seminar at the 1958 World Bank/IMF Annual Meetings in New Delhi. “It accelerates its spread and process of growth by acting as a catalyst.” By 1959, IFC had a $19.8 million portfolio of investments urged staffers to support reforms that would improve in 11 countries, reporting to its shareholders that every the investment climate in developing countries, dollar invested from its own resources was matched sensing the potential impact in a developing world by three dollars from the private sector. “Private where he saw not just extreme poverty, but “growing industrial growth provides developing countries markets, untapped raw materials and abundant labor with a vigorous force in their economic development able to acquire modern skills.” and distributes its benefits widely among the people,” Garner wrote in that year’s annual report. “IFC’s In one of his final acts before retiring in 1961, Garner objectives are to assist and stimulate this growth by at last convinced the shareholders to agree to one associating with private business and investment of his original agenda items: expanding IFC’s role by capital, both from the more highly-developed and the amending the charter to allow equity investments developing countries.” and other financial instruments. Always eager to do more, Garner also pushed for IFC When Garner retired, World Bank President Eugene to provide formal advisory services, which would Black provided words of acknowledgment. Garner, he take time to develop. While staying clear of politics, he said, “was a pioneer.” 29 IFC: THE FIRST SIX DECADES DECADES 1–3 1950s–1960s 1970s 1980s BEGINNING WITH INNOVATION Committed to innovation from the outset, IFC started as a small, Washington-based institution. In these early years, IFC worked to increase the private sector's growth and contribution to development, well before these essential ideas had widespread international acceptance. Wherever possible, the institution focused on “firsts”— as it has ever since. Initially IFC worked mainly alongside foreign mul- tinationals in key sectors such as manufacturing, mining, and agribusiness. Over time, the approach widened, as IFC found ways to help local companies obtain financing in their own countries, and support governments’ efforts to improve the investment climate. CHAPTER 1 EVOLVING THE APPROACH Bristol de México: An early IFC client in the aircraft repair industry. t first, IFC pursued its mission on a transaction- production of heavy electric equipment ranks very by-transaction basis—growing gradually and high because of the great emphasis put on the devel- learning lessons that would later allow it to opment of power.” work at a much larger scale. Other loans in this same pioneering spirit followed in Working without a large capital base, IFC could at first that first year, including: offer only limited amounts of financing. Demand was high, nonetheless, with hundreds of proposals received $600,000 to help the U.S.-Mexican joint venture • in the first year. The first investments were confined to Engranes y Productos Industriales, S.A., launch loans, typically in the $200,000 to $3 million range, to Mexico’s first manufacturing plant for specialized finance industrial projects in Latin America and Asia. automotive parts. Supplementing private capital, they supported “firsts” • $520,000 for Bristol de México, a local company tied of various kinds that could stand as points of progress to Bristol Aeroplane Co. of the UK. It was building in private sector development—something that would Mexico’s first aircraft engine overhaul and repair become a hallmark of IFC operations. facility, serving national airline Aeroméxico. $2.2 million to develop the Mantos Blancos copper • IFC’s first investment came in September 1957. It mine in Chile, using new metallurgical ore treatment was a $2 million, 15-year loan to help the local affil- technologies that were just coming into use that year. iate of German electrical equipment manufacturer Siemens build Brazil’s first integrated assembly plant Many more loans ensued in different markets in the to supply local utilities. coming years, financing steel products plants in India and Pakistan, textiles in El Salvador, and cement Located near São Paulo, the new plant would “fill a real production in Thailand. In 1960, IFC first invested gap,” investment officer Hans von der Goltz wrote in in Africa with a $2.8 million loan package for the his credit analysis report. “So far there is no producer new Kilombero Sugar Co. operation in Tanzania (then of heavy electric equipment in the country,” he added. called Tanganyika). “In the list of industrial development priorities, the 33 IFC: THE FIRST SIX DECADES But this selected, loan-only approach could only go so far. After five years, the institution was making less of a mark on the world than expected, having approved just $44 million in total lending by 1961. In response, IFC challenged its own status quo. “It was time for the idea of change,” recalled Martin Rosen, who succeeded Robert Garner at IFC’s helm in 1961. “In the opinion of many, IFC would do no more than pick at the fringes of its problems unless its scope was greatly widened.” This new thinking led to three dramatic shifts that soon became core aspects of IFC’s business model, in each case catalyzing much greater results over time. 1959: FIRST MOBILIZATION The Articles of Agreement encouraged IFC to focus not just on investing its own resources, but on mobilizing additional capital from others. The first step in this key direction was IFC’s first loan syndication: $2 million raised from commercial banks in 1959 for Brazilian pulp and paper producer Champion Celulose. Packaged alongside IFC’s own loan, the financing supported a new bleached sulfate wood pulp mill then being built at Mogi Guacu in the state of São Paulo. The mill still operates today, now owned by one of the world’s largest pulp and paper companies, International Paper. By putting a trusted stamp of approval on this high-pri- ority start-up, IFC was able to mobilize more capital from other investors than it could provide alone. This capability soon became a critical aspect of IFC’s 1960: approach to financing development. Today, IFC’s New York Times coverage of loan-syndication program is the oldest and largest of IFC’s first African its kind among multilateral development banks. The transaction. program has mobilized approximately $50 billion for more than 1,000 emerging market projects. 34 BEGINNING WITH INNOVATION 1962: FIRST EQUITY INVESTMENT Equally important was addressing the charter’s initial $500,000 stake in Spain’s Fábrica Española Magnetos, restriction against making equity investments, some- a manufacturer of automotive electrical components. thing that at first had hindered IFC’s ability to be a The company used the money to expand its Madrid catalyst of private sector capital flows in emerging factory and build a new one in Treto. economies. Equity investments provide critical but scarce long-term growth capital. Private enterprises At the time, it was not uncommon for IFC to invest need this capital to reach their potential, and econ- in Western Europe. In many ways, Spain was still an omies need this capital in order to develop. Without emerging market in 1962 and considered fully worthy the ability to make these investments and become a of IFC support. Building on this initial investment in shareholder of client companies—to have a true seat the Spanish factory (later acquired by Bosch Group at their tables—IFC's role would always be limited. of Germany), IFC began using its new equity tool to encourage a widening pool of other investors to share Following the 1961 charter revision that granted this risks and rewards in the developing world. Today, equity authority, IFC took up the challenge, actively working as investment represents approximately 30 percent of an equity investor to strengthen the capital structure of IFC’s $52 billion global portfolio. client firms. It all began in 1962 with an approximately Madrid, 1962: Signing of IFC’s first equity investment, in Spanish auto parts manufacturer Fábrica Española Magnetos. 35 IFC: THE FIRST SIX DECADES Strengthening the Private Sector: IFC's role from the beginning, in Brazil (left) and other countries. 36 BEGINNING WITH INNOVATION 1962: FIRST FOCUS ON FINANCIAL INSTITUTIONS In addition to launching its first loan syndications Also significant was Korea’s first private industrial and equity investments, IFC’s innovations in the early investment institution, the Korean Development 1960s included its first work to strengthen local Finance Corporation (KDFC), which IFC helped launch financial markets. At the time, such markets were as a founding shareholder in 1967. A $702,000 equity typically too underdeveloped to support large-scale commitment for KDFC came alongside $5 million private sector development on their own. The earliest in loans from the World Bank and $17 million from work in this sector—now the largest component foreign and domestic investors. IFC would provide of IFC’s portfolio—involved joint support with the critical capital for the national takeoff that would World Bank to local development finance corpora- follow, as the bank changed its name and evolved tions (DFCs), specialized institutions financing local over time, first to Korean Long-Term Credit Bank and businesses that otherwise had limited access to later to KB Kookmin Bank. Today, Kookmin is one of capital. In 1962, IFC set up a dedicated DFC depart- the four largest banks in the country and stands as ment. Over the next six years, IFC, together with one of the world’s great development success stories. the World Bank, invested $560 million in DFCs in This innovative investment, IFC’s first in Korea and 15 countries, often also providing contracted manage- an early case of crowding in private capital, came at ment and staff training. Some of these clients became just the right time. major forces in their countries’ development over time. “When we helped to set up the KDFC in 1967, exports The best known example is the precursor of what is were around $250 million a year,” IFC’s William today India’s largest private financial institution, ICICI Diamond said later. “When I went back for a review Bank. Founded at the World Bank’s initiative in 1955, of their structure with them in 1977, 10 years later, the Industrial Credit and Investment Corporation of exports had hit $10 billion a year. The city of Seoul India was at first a relatively small institution that was a different world compared to the one I had first received extensive World Bank funding and additional gone to in '67.” IFC technical support for many years. Redefined as ICICI Bank in 1994, it has now evolved into a major financial power, with the rupee equivalent of $109 billion in assets as of March 2016. Korea, 1969: IFC chief Martin Rosen (center) visits. 37 IFC: THE FIRST SIX DECADES FUTURE DIRECTIONS Yet even with these three significant new product lines, the IFC of the mid-1960s remained a small player Lester B. Pearson: with only limited success in delivering on its vision. A A former Prime Minister of Canada who significant turning point came in 1969 with the release encouraged IFC to take of a major report on the future of development finance on a larger role. from a blue-ribbon panel of experts headed by former Canadian Prime Minister Lester B. Pearson. In many ways, it changed the course of IFC history. Created at the World Bank Group’s request in 1967, the Pearson Commission spent nearly two years trav- eling the world to investigate a wide variety of topics, including the volume and terms of aid, the debt burden of developing countries, trade, private investment, and more. One of its key findings was that IFC could have a powerful role in international development, but only if it stepped up its activities. The commission’s report criticized the narrowly defined IFC of the 1960s for “overemphasizing prof- itability as an investment criterion and not taking project initiatives,” wrote historian Jonas Haralz in the World Bank’s official 50th anniversary history book. New World Bank Group President Robert McNamara agreed, encouraging IFC to start thinking bigger. His call for more changes signaled a redefinition of IFC’s commitment to development impact. The first change was the hiring of IFC’s first economics It was in this new environment that IFC brought in adviser, a sharp-thinking International Monetary Fund Wall Street venture capitalist David Gill to launch the official from Pakistan, Moeen Qureshi. He would go on Capital Markets Department, soon to be home to to become IFC’s chief and, later, his country’s Prime some of the institution’s most innovative work. Minister. Qureshi energized the intellectual environment in LESSONS OF EXPERIENCE IFC, adding new analytic rigor to IFC projects that Ch. 1: Evolving the Approach until then had been evaluated almost exclusively on financial terms. Development finance requires an ever-growing set of tools, adapted and refined over time in response to global needs. 38 BEGINNING WITH INNOVATION Venezuela: Part of IFC’s early emphasis on Latin America. Mexico, 1962 CHAPTER 2 STRENGTHENING THE FINANCIAL SECTOR Access to Finance: A cornerstone of development, strengthened in many countries by IFC. S eptember 1970: IFC charts a new course. had sensed the unique ability of capital markets to channel local savings into productive investment, thus fueling local entrepreneurship, creating jobs, and World Bank President Robert McNamara, a one-time reducing poverty. president of Ford Motor Company, had received the Pearson Commission’s report and was ready to give Anticipating the distant economic future with uncanny his response. Speaking at the World Bank Group/IMF precision, the Pearson report observed that as poor annual meetings in Copenhagen, he fully endorsed the countries’ economies grew, “the need for aid should commission's findings, including its call for IFC to “give eventually subside” and that foreign direct investment greater emphasis to the development implications and access to capital markets “would then increas- of its investments.” ingly meet the demand for development finance.” Pearson and his team had been deeply concerned “IFC has done some useful work in this area,” the about the world’s rising population and the growing authors had written in 1969, “but it is in a position to gap between rich and poor. While strongly supportive do very much more.” of increased foreign aid, they opened their report with recommendations for two key market-based solutions: The commitment to this groundbreaking work began in 1971, with the creation of IFC’s Capital Markets • Free and equitable trade Department, an act of “profound importance,” • Promotion of mutually beneficial flows of foreign according to historian Jonas Haralz. It was a pioneering private investment effort from the outset, one that involved a combina- tion of investment and knowledge sharing in order to To help get there, the report urged a much stronger help countries develop deep, efficient, local capital role for IFC—not just in finance but in development. markets as a foundation of a thriving private sector. Few noticed at the time, but the Pearson Commission 43 IFC: THE FIRST SIX DECADES Indonesia: IFC Capital Markets Director David Gill meets with government officials outside Jakarta, 1975. The department’s founding director, David Gill, later foreign or local co-investors establish new institutions recalled the time in his 2012 memoir, Tales of a Financial in them, often creating new subsectors by setting Frontiersman: up a first-of-its kind institution. In the process of broadening and deepening local financial markets, "After doing what we could to help improve the finan- IFC pioneered new products and markets that were cial infrastructure, the logical next step was to help both profitable and impactful, including: establish the appropriate financial companies to operate in the markets. We worked in every financial •Creating the Emerging Markets Data Base in 1981— subsector—banking, leasing, housing finance, secu- the earliest and single most comprehensive source rities firms, insurance, venture capital, investment of stock market data on emerging markets for insti- companies and related management companies. As tutional investors access to foreign capital was another objective, we •Launching or revitalizing moribund stock exchanges also promoted what came to be called country funds in more than 20 countries to encourage foreign portfolio equity investment. Structuring and underwriting the first successful • And, finally, we participated in initial public offerings closed-end country fund (the Korea Fund, 1984) and of stocks and bonds in local markets." the first global emerging markets fund (the Emerging Markets Growth Fund, 1986) Gill’s team was committed to discovering niches •Establishing the first venture capital or private equity where the private sector could operate, then helping funds in more than 20 countries 44 BEGINNING WITH INNOVATION THE THAILAND EXAMPLE This approach brought benefits to many countries. market. By 1975, a new basic legislative framework Among them: Thailand, a country that had little was in place, and the new exchange officially started presence in the global economy in the 1970s, and trading. Known since 1991 as the Stock Exchange of where IFC helped foster remarkable growth over Thailand, it became a mainstay of one of East Asia’s the next two decades by giving the government an strongest economies, supported by IFC’s invest- early blueprint for capital market development. This ments over the years in related institutions such as included advice for creating an independent regula- brokerages, credit-rating agencies, a mutual fund tory body to oversee a new local stock exchange; an management company, and local currency bonds. existing exchange had seen its trading levels fall to The exchange has mobilized vast sums of capital to almost nothing, finally ceasing operations altogether. finance the country’s modernization. It has become In 1974, long-awaited legislation establishing the a nexus for local pension funds and retail investment new exchange was enacted, followed by other terms opportunities, giving millions of Thai families financial allowing the investment of savings in the capital security over the years. Thailand: A founding shareholder of IFC in 1956 (left), it was a focus of early capital markets work in the 1970s, fueling industrial growth. 45 IFC: THE FIRST SIX DECADES SMALL AND MEDIUM ENTERPRISES Knowing that they are the backbone of emerging market economies but too often are held back by a lack of access to capital, IFC has long made small and medium enterprises (SMEs) a focus of its work with local financial institutions. Helping local lenders see the potential in this market has unlocked vast sums of private capital for entrepreneurs who drive job creation. It all began in 1976 with a $2 million line of credit to Kenya Commercial Bank (KCB), which then provided smaller sub-loans and business advice to local SMEs. It was the first transaction of its kind in World Bank Group history, and “took some doing and a lot of hand-holding,” IFC’s investment officer in the transaction, Promodh Molhotra, later wrote, “but the new approach slowly began to take hold and loans began to be made successfully.” Within seven years, all the loans had been repaid. The businesses that KCB had selected had all expanded profitably, helping it see the promise of the untapped SME finance market. IFC’s commitment to increasing capital flows to local SMEs grew dramatically over time, sup- ported by new products such as the African Project Development Facility advisory initiative for SMEs, launched with UNDP and the African Development Bank in 1978 and then replicated in other markets. Today, IFC’s SME finance work is global in scope, delivered through 900 financial intermediaries in 120 countries. It is part of a larger effort to mobilize private capital for the traditionally excluded—not just SMEs, but also women, youth, firms, and individuals based in rural and underserved areas. SME Finance: IFC's support helps local banks tap this growing market. 46 BEGINNING WITH INNOVATION COINING A PHRASE: EMERGING MARKETS Beginning in the late 1970s, IFC began collecting data on emerging stock markets and gave presentations in various global forums, putting forth data on size, depth, liquidity, and the regulatory environment. This helped launch a global debate on the advantages of local stock markets and the issues involved in allowing foreign investment. In 1980, IFC began tracking total return data since 1976 for 10 markets (Argentina, Brazil, Chile, Greece, India, Jordan, Korea, Mexico, Thailand, and Zimbabwe), showing attractive results and making a good case for increased investment. In 1981, IFC’s Antoine van Agtmael made a presentation to investment bank Salomon Brothers in New York, proposing a global listed equity investment fund for developing countries. While many of the fund managers present were interested, a banker from JP Morgan made an astute observation: IFC would never get buy-in using the original proposed name, “Third World Equity Fund.” Van Agtmael agreed. He spent the weekend consid- ering a name and came up with a new term for both was used primarily as an internal research tool for the idea and the investment he wanted to promote: IFC’s equity investment program. It also served as Quantitative Data: emerging markets. “Third world” was a term that the basis for advice given to member countries on the In the 1980s IFC was a vital source connoted extreme poverty, shoddy goods, and hope- integration of securities markets into their economic of information, lessness to many at the time. But “emerging markets,” development programs. IFC teams, armed with data underscoring the van Agtmael would later write, “suggested progress, and analysis based on EMDB, made their case for growth of emerging market investing. uplift, and dynamism.” It reframed the picture, in time stocks in emerging markets as attractive investment becoming the universal term used in the financial world opportunities to investors and mutual fund managers to describe developing economies. in the industrialized world. The availability of consis- tent and reliable information on developing-country Building on the momentum, IFC then created the stock markets, designed to look similar to informa- Emerging Markets Data Base (EMDB), providing tion provided on developed markets, facilitated the investors with a much-needed source of performance marketing and performance measurement of the early data in an era when information was much harder to emerging market–focused investment vehicles that come by than it is today. In its early days, the EMDB IFC helped create. 47 IFC: THE FIRST SIX DECADES COUNTRY FUNDS The next step was to create an effective channel for By the 1990s, the equity and bond markets of the foreign investors to begin participating in emerging emerging economies were becoming more interesting stock markets. The early emphasis was on country to international investors. After the successful devel- funds, creating pools of capital for investment in listed opment of the Korea Fund, over 150 country funds for companies. Rather than expecting them to purchase emerging markets were launched in the late 1980s individual shares locally, this closed-end model gave and early 1990s. investors a means for exposure in a diversified port- folio of equities, while also offering dedicated portfolio GLOBAL SCALE management, brokerage, and custody services that were not previously available. Building on this success, IFC’s Capital Markets team decided to scale up the country fund concept. Working After working together with the Korean authorities with a respected asset management company, the Los for many years in developing rules and institutions to Angeles-based Capital Group, the team built the first enforce security market regulations, IFC structured global fund for securities from the developing world— the groundbreaking Korea Fund in 1984 and sought as always, putting IFC’s own money at risk along with co-lead underwriters to help list the fund on the New that of other investors. Pension funds and insurance York Stock Exchange. This first $60 million listed fund companies expressed interest, and by 1986 a globally in turn catalyzed a global emerging market country diversified $50 million vehicle had been created: the fund industry, in time attracting hundreds of billions Emerging Markets Growth Fund (EMGF). Today, three of dollars in new investment. decades later, the fund stands at $3.3 billion. The establishment of the Korea Fund became a blue- IFC’s initial steps in the mid-1980s gave rise to a new print for other emerging market funds. IFC’s central industry, one that over the years would see mainstream role in the Korea Fund’s development went beyond investors pour billions into stocks and bonds from merely acting in an advisory capacity. IFC helped developing countries. This catalytic effort helped establish the structure and best practices approach local capital markets mature, do more to finance job for emerging market equity funds, creating a niche creation, and spur savings growth around the world— within the financial services sector that was replicated heeding the Pearson Commission’s early, visionary call. many times. Because the model could be adapted across different countries and platforms, this process continued in later iterations of country funds, even LESSONS OF EXPERIENCE when IFC was not directly involved. This replication Ch. 2: Strengthening the Financial Sector illustrated IFC’s important catalyzing role in financial sector development in emerging markets. Financial institutions are essential for development, bringing widespread benefits as they grow stronger. 48 BEGINNING WITH INNOVATION PRIVATE EQUITY Along with country funds that primarily invest in $877,000 investment in the Sociedad Española large companies listed on local stock exchanges, de Financiación de la Innovación (SEFINNOVA) IFC also pioneered the growth of emerging market private equity fund for Spain, then still considered private equity funds, which target growing, unlisted a developing country. In the annals of the industry’s companies. Using a model long established in indus- history, investor Peter A. Brooke wrote in his 2009 trialized economies, they mobilize capital from book A Vision for Venture Capital, SEFINNOVA institutional investors and invest it in growing stands as “not only the first in Spain, but in the privately held firms, scouring the market for good entire developing world.” business opportunities and strengthening local economies in the process. From this small starting point, IFC gradually built a global portfolio of emerging market private equity Today this is a large-scale industry, with $29 billion and venture capital funds. By 2000, IFC had invested invested in emerging market private equity and in more than 100 such funds, many of them the venture capital in 2015 alone, according to indus- first of their kind in their markets. But the investor try estimates. But it was completely unknown base at the time was almost exclusively made up of when IFC first entered the field in 1978 with an development finance institutions. As the new mil- lennium began, few private investors were willing to tie up their money in these long-term vehicles, not knowing how local risks would affect their exit strategies. Private Equity: Rising companies need growth To attract more private capital, IFC began focusing capital, which helps on industry standards. Working with research firm drive job creation across emerging markets. Cambridge Associates, IFC created the first per- formance benchmark for emerging market private equity, launching the Emerging Market Private Equity Association (EMPEA) as the industry’s membership organization. This helped open the door to today’s significant private investment levels, building an industry that now plays an essential role in financing job creation, growth, and development. Today IFC has a more than $7 billion private equity portfolio, with investments in more than 280 funds. ADVISORY SERVICES AT IFC Launched in the 1970s with an early focus on the movables such as receivables, set up a clearer priority financial sector, IFC has now built a large-scale, rule, and provided a better basis for enforcement. global advisory services business—one that has That same year, China opened its first nationwide grown dramatically over the decades. Integrating Internet-based filing system for secured transactions, knowledge of global industries and local markets, incorporating all the key features of a modern it now covers many industries and products and movable collateral registry. is an integral part of IFC’s work to increase the private sector’s role in development. In 2011, a private consulting firm carried out an independent evaluation of IFC’s role in the Complementing the other core focuses on investment seven-year project, which involved close, ongoing and mobilization, IFC’s advisory services add value support to Chinese government clients from IFC to three broad categories of clients: specialists with deep knowledge of secured trans- actions law, registry, and movables financing issues. • Companies The evaluation found that cumulatively the project • Governments had facilitated $3.58 trillion of accounts receivable • Financial institutions and funds financing involving movable assets, including more than $1 trillion of SME lending in China—as indi- Built on six decades of experience, IFC's advisory cated by the collateral registry's data. services help create new markets, unlock investment opportunities, and strengthen client performance Globally, IFC’s advisory services portfolio now and impact. includes more than 700 projects in about 100 countries, valued at $1.3 billion. Most of IFC’s In 2004, for example, China sought IFC’s technical advice was delivered to clients in IDA countries— support in increasing access to finance for its small including more than 20 percent in fragile and and medium enterprises. The goal was to develop conflict-affected areas. an appropriate legal and institutional framework to allow the use of movable assets such as receivables as collateral for loans—something that until then had been hindered by the lack of an adequate secured transactions law and the poorly functioning registries. In 2007, China enacted a new property law. Adopting a number of important principles of modern secured transactions systems, the law allowed the use of 50 BEGINNING WITH INNOVATION IFC Advisory Services: Focused on lower-income countries, but delivered globally. In China, IFC's support helped unlock more than $1 trillion in new lending for SMEs. 51 IFC: THE FIRST SIX DECADES Mali, 1980s CHAPTER 3 IMPROVING THE INVESTMENT CLIMATE Indonesia: Today's Cibinong cement plant, first financed by IFC in 1971. F rom the beginning, the challenge was always and control; issues in taxation, regulatory, and labor larger. policy; and others. Garner called on governments to begin removing these obstacles in order to attract No matter how much capital IFC and its partners capital, spur private sector growth, and ease poverty. could provide, it would never be more than a fraction “Now is the time,” he wrote in his introductory letter of what was needed to finance the large-scale job to IFC’s 1959 Annual Report. creation required to lift countries out of poverty. That would necessitate broad and concerted government INDONESIA action to improve the investment climate, turning countries into more attractive destinations for private It took time for the right opportunities to appear. After capital. But such thinking went against the grain in early behind-the-scenes efforts in the first decade, the early decades, when most governments believed IFC’s initial investment-climate work gained strength in state-driven models of development. IFC could play in 1967 in Indonesia, then just emerging from a trau- a critical role in ushering in the transition, advising matic period of prolonged conflict. Once stability on reforms and financing landmark projects whose was restored, the new Suharto government began an demonstration effect would clear the way for others. economic reform program. This program included a Ultimately, though, governments would have to show plan to start attracting foreign investment, which was the political will to drive the reform process that would negligible in Indonesia at the time. increase investment. Understanding outside investors’ reluctance, the Robert Garner realized this in the 1950s. He knew that government invited an IFC team to Jakarta to help the perceived risks of individual companies were just craft new laws and regulations governing joint ventures one reason outside investors were holding back in with foreign companies, and then to finance early, developing counties. He saw bigger-picture obstacles precedent-setting examples. Two key industries were standing in the way: restrictions on foreign ownership targeted: textiles and cement. 55 IFC: THE FIRST SIX DECADES Sensing the promise of the local market, IFC arranged between Kaiser Cement of the US and Gresik Cement for a group of leading Japanese textile manufacturers Company of Indonesia, investing $13.1 million in to visit Indonesia and meet potential business part- financing in 1973. Within a few years, both the cement ners. By 1971, two modest projects emerged, soon and textile industries were thriving and had attracted becoming IFC's first investments in the country: new additional foreign direct investment, no longer needing Indonesian/Japanese fabric production joint ventures IFC’s help to make their case to investors. A larger called PT Unitex and PT Primatexco. Together they surge in investment and private sector development created 1,500 new jobs that helped increase foreign then followed. Along with the government’s sound investors’ interest in the country. pro-poor policies—including support for agriculture, education, health services, and infrastructure—this During this same period, IFC also helped set up a helped Indonesia’s poverty rate drop from 40 percent $26 million joint-venture cement plant in Cibinong to 18 percent between 1976 and 1996. Indonesia: Inside the Cibinong cement plant, now owned by global building materials leader LafargeHolcim. 56 BEGINNING WITH INNOVATION Yugoslavia: IFC financed automaker Zastava's expansion in 1970. YUGOSLAVIA Over these same years, IFC provided a similar support entity’s initial $12 million in capital, with Yugoslavia package of advice plus investment to Yugoslavia, supplying $3 million and a group of Western and which posed different challenges. Josef Tito, the Japanese banks providing the rest. longtime ruler, led a nonaligned socialist state that had begun making limited moves to liberalize the In 1970, IFC then made a large vote of confidence in economy and attract foreign investment. In 1967 his the initial reform program, financing the $105 million government invited an IFC team to help with these expansion of Yugoslavia’s largest automaker, Zastava. new policies and finance future projects that they But the country’s economic model remained an hoped would have a demonstration effect. obstacle to larger-scale private sector development. Without sustained government support for policy IFC’s initial efforts focused both on translating reform, foreign direct investment in Yugoslavia could Yugoslavia’s complex accounting practices into not increase dramatically in the following years, and Western terms and helping create a legal frame- IICY had to be closed. The IFC team learned that it was work where foreign companies could feel confident not enough to set up the foundational legal structures that they could eventually take profits out of the and provide initial financing: results also depended on country. For further support, in 1969 IFC helped set ongoing political commitment. Proof of this essential up a specialized investment vehicle to finance joint concept would later be seen in the world’s largest ventures, the International Investment Corporation emerging market, China. for Yugoslavia (IICY). IFC contributed $2 million of the 57 IFC: THE FIRST SIX DECADES CHINA As China began to liberalize its economy and open economic decisions to be made by market forces, itself to foreign investment in the 1980s, the country which drove productivity increases, innovation, and asked several international development agencies for rapid economic growth;” and “China opened up to the help. IFC began providing support in 1985: making its outside world to trade, foreign investment and ideas, first investment in China, supporting a $79.5 million which it adapted for its own particular circumstances Peugeot pickup truck factory in Guangzhou, and as reforms progressed.” advising on improving the laws governing joint ventures. In the course of carrying out that advisory From that key starting point in China in 1985, IFC work, IFC's team discovered a much bigger barrier worked with the World Bank and the donor commu- to foreign direct investment (FDI): Joint venture nity to create a new body to help countries attract candidates would face difficulty repatriating profits foreign direct investment, the Foreign Investment earned in local currency due to restrictions in China’s Advisory Service (FIAS). Over the next 12 years, it foreign exchange regime. would support reforms in 108 countries. The work contributed to a time of explosive and widespread To address this critical issue, in 1986 IFC provided growth in foreign direct investment, with net flows to Chinese authorities with the results of a survey of developing countries increasing from just $12 billion 100 foreign companies that had expressed interest in in 1986 to $120 billion in 1998. A program review that the country. The companies’ biggest concern was the year concluded that while in 1985 most countries “by difficulty of exchanging currency. Playing its honest design or consequence” had policies that discouraged broker role as a member of the World Bank Group, foreign investment, the opposite was now the case. IFC was able to make a persuasive case for reform. A new era had begun: the era of unlocking private The Chinese government eventually agreed to grad- investment on a much larger scale. This key part of ually ease these restrictions over the next few years. IFC’s founding vision was at last now being achieved— After essential last steps in 1990, coupled with reforms not by IFC alone, but by the larger combined forces encouraged by other development agencies, China of public sector policy reform and private sector saw an explosion in foreign direct investment. While response. the export-oriented sectors got most of the attention, much of this investment was aimed at the domestic market, where currency exchange was essential. Over LESSONS OF EXPERIENCE the next 25 years, the country achieved unprecedented Ch. 3: Improving the Investment Climate economic growth. Large-scale job creation depends on a vibrant By 2016 it had lifted 700 million people out of private sector, which thrives when governments poverty, more than any other country in history. In are committed to setting the right conditions reflecting on this remarkable achievement, a World for business growth. Bank analysis cited two primary factors: “China grad- ually reformed its economic system to allow more 58 BEGINNING WITH INNOVATION China: IFC's investment climate advice starting in 1985 came at a critical time. Brazil, 2000s CHAPTER 4 BUILDING GLOBAL AND REGIONAL LEADERS A Strong Partnership: Syed Babar Ali (left), founder of Pakistan's leading pulp and paperboard firm, Packages, Ltd., signs an investment agreement with IFC, 1982. hile IFC initially focused on investing identified promising local companies—in some cases alongside foreign multinationals, local assisting in establishing them—and then supported enterprises were always on its radar as well. their growth. This has helped a new generation of Growing over time from some early examples, the emerging market firms compete on the global stage, process of strengthening these cornerstones of with IFC accompanying them through their business private sector development through long-term part- cycles and evolving market environments, and offering nerships has become an essential part of IFC’s work. them investment and advisory services to meet their changing needs. Traveling throughout Asia in 1953, three years before the creation of IFC, Robert Garner met with some The Tata relationship, for example, has grown steadily of India’s leading industrialists. Among them was from the initial 1980 financing of its steel and hotel J.R.D. Tata, then head of the country’s best-known units—company divisions that later became significant conglomerate, the Tata Group. Sensing opportuni- global players. Today, Tata companies remain close IFC ties for collaboration, Garner laid the groundwork partners in India and other countries, even as their for client relationships in India, today IFC's largest roles continue to evolve. Tata Power, for example, is country of operations, representing a more than cosponsoring the Shuakhevi Hydropower Project in $4 billion portfolio. Since then, IFC has followed the Georgia, an IFC-financed 187-MW clean energy plant same relationship-based approach with many other that is expected to open in 2017. rising emerging market businesses. In Pakistan, IFC has been investing steadily since 1965 The Indian investments began with a 1959 loan to in Packages, Ltd., helping it evolve from a mid-size Republic Forge Co.’s steel forging plant in Hyderabad packaging unit into that country’s largest integrated and continued with others, including a 1963 loan to a pulp and paperboard mill. This work anchored several Mahindra Group alloy steel products factory outside other initiatives led by the firm’s founder, Syed Babar Mumbai. Ever since these and other early steps, IFC has Ali, including collaborating in the creation of the 63 IFC: THE FIRST SIX DECADES Lahore University of Management Services in 1984. KOREA: LG ELECTRONICS In the 1990s, IFC helped Packages establish an invest- ment bank in collaboration with American Express When Robert Garner retired in 1961, Korea had an and expand manufacturing operations to Sri Lanka. In annual per capita income of $110. It was an impover- 2013, IFC played a key role in brokering a relationship ished post-conflict country, with weak infrastructure with Finland’s Stora Enso, which took a 35 percent and institutions, a painful past, and an uncertain equity stake in Packages’ paper mill, Bulleh Shah future. Today it is a thriving OECD country with per Packaging (Private) Limited. capita income of more than $33,000 and many globally competitive companies. IFC played a part in Jordan’s Nuqul Group has worked with IFC for nearly building one of them, LG Electronics. 30 years, growing in that time from a modest local trading company into a worldwide corporation In the early 1970s, Gold Star, as it was then known, embracing a number of ventures in the Middle East. was a local company, successfully producing and “IFC, unlike other financing institutions, considers selling appliances, radios, televisions, and a few other the developmental needs of the region and the modest products at home, but barely known outside role that the private sector plays in supporting the Korea's borders. Hoping for better things, it sought to economy as a source of growth and employment,” expand production and increase its exports, which then says Ghassan Nuqul, vice chairman of Nuqul Group. brought in less than $20 million a year. But there was “By providing long-term financing and investments, a big barrier in the way: access to finance. IFC has supported the region’s economy in several sectors including infrastructure and industry, as well Korea’s commercial banks were providing little long- as providing access to finance.” term credit. They had tough exposure limitations that Jordan: IFC has supported Hikma Pharmaceuticals since 1987, providing financing and advisory services that helped it become one of the top generics companies worldwide. 64 BEGINNING WITH INNOVATION Korea: Equipment testing at IFC client Gold Star, forerunner of today's consumer electronics giant LG Electronics, 1975. kept them from making significant new private sector On IFC’s recommendation, a distribution agreement loans. LG thus wanted to establish relations with was reached with Sears, the leading retailer in the foreign lenders and begin accessing the international United States at the time, taking advantage of LG’s capital markets. position as a low-cost producer of a popular consumer product. Branded under the Sears name, the TVs soon Having few international partners at the time, LG turned found an eager new market in the world’s largest to IFC, which had an investment staff with extensive economy. global knowledge of industries and markets—attrac- tive assets to clients in developing countries at a time Before 1974 was out, IFC had provided $17.3 million in when information was much harder to come by than long-term financing for the new factory that LG could it is today. not obtain from local banks—including $5 million mobi- lized from foreign lenders. In the process IFC became An IFC team came from Washington in 1974 and a shareholder in LG. This single project doubled the assessed LG’s ambitious proposal for a new $30.9 company’s total assets. But even more important were million television tube factory. After running the the additional introductions IFC provided to its partners numbers on the growth potential of the Korean TV in the financial world. These newfound commercial market and comparing them with similar ventures in banks would then become the source of much extra Japan, the IFC team saw that the domestic market funding over time. The export business soon took off, could never absorb the new factory’s entire output building new customer loyalty that could then be taken in the early years. They recommended a major shift up to the next level. in strategy for production of LG’s popular black-and- white TVs: adding an export component. 65 IFC: THE FIRST SIX DECADES Korea: Gold Star assembly line, 1975. In the next three years, the Korean company’s sales “That’s the wonderful part of the work we did,” he would grow by an extraordinary 53 percent per year. recalls. “We succeeded in a number of countries By 1978, LG’s annual exports were up to $100 million, because we were operating around the world in a making it one of the first emerging market multina- range of industries and could take this experience tionals to succeed on the global stage. A long-term and spread it around, like honeybees cross-fertilizing partnership with IFC was soon underway, leading to plants. Even though we had never worked in consumer several subsequent transactions that helped build the electronics before, we could advise LG on things like firm into the success it is today. sourcing machinery, market risk, and capital costs, and that proved very important to them.” Over time, LG built a high-value brand—one that now generates more than $38 billion in sales each year and allows it to employ 66,000 people worldwide. An LESSONS OF EXPERIENCE estimated 86 percent of these sales now come in the Ch. 4: Building Global and Regional Leaders foreign markets that LG first entered with IFC support. Engaging with local entrepreneurs and As he looks back at the story today, former IFC Vice- strengthening their capacity are integral to President Makarand Dehejia feels the key was IFC’s private sector development and essential special combination: knowledge and finance. for economic growth. 66 BEGINNING WITH INNOVATION HDFC PIONEERING HOUSING FINANCE IN INDIA “Catalytic role” is one of the most important HDFC was created with IFC’s support in 1978. phrases in the IFC lexicon, defining the way IFC A founding shareholder alongside ICICI, the Aga uses its ideas and capital to kick-start private sector Khan Foundation, and others at the time, IFC has initiatives that help create opportunity and improve invested more than $240 million in HDFC over people’s lives. the years, using the corporation as inspiration for its global line of business in housing finance that Consider the example of India’s Housing today represents more than $1 billion in committed Development Finance Corporation (HDFC). The exposure. pioneer of that country’s vast home-loan market, it has helped more than 5 million Indians realize IFC has long since sold its equity stake in HDFC. the dream of owning their own homes, while also However, a strong working relationship with the sharing its knowledge to help build the housing firm remains, building on IFC’s original catalytic finance industry in various countries across Asia, role. “It was all a case of structuring it correctly Africa, and Eastern Europe. from the outset,” recalls IFC’s investment officer on the original transaction, Promodh Malhotra. “And there’s a lesson in this. If IFC just does it ‘right’ at the beginning, then points the way for others in the market and gives the right signals, the market in a developing country will take care of the rest.” India: HDFC-financed housing units under construction, 1980. 67 IFC: THE FIRST SIX DECADES LONG-LASTING PARTNERSHIPS A KEY TO IMPACT From its early years, IFC has focused on building long-term rela- them in local firms that stand to benefit from their capital and tionships with clients and partners—working closely over time, expertise. together achieving both strong business results and significant development impact. IFC has also had long-term relationships with many key development partner agencies and foundations that have helped Beginning in the 1960s and continuing to today, this approach identify emerging needs, shape priorities, and co-fund advisory often involves support for rising players in emerging markets. In services programs. Many partners have supported this work, these cases, IFC provides its full range of products and services but the 10 most active to date have been the United Kingdom, to guide clients’ development and assist in their cross-border Switzerland, the Netherlands, Canada, the United States, Japan, growth. Australia, the European Commission, Austria, and Norway. More recently, IFC has also built strong relationships with global Whichever the case, the goal is always the same: increasing the players based outside of emerging markets, co-investing with private sector’s role in development. Examples include: DEVELOPMENT 1985  FC launches FIAS, I 1990s IFC expands 2010 IFC development 2016 IFC development partners PARTNERS its largest multidonor program, to promote its network to include partners contribute more than $1 billion contribute to major funding increases for two blended investment climate more than 30 to fund future finance initiatives, the reforms. development advisory and Global Agriculture and partners. concessional Food Security Program finance programs (GAFSP) and the Global addressing the SME Finance Facility. impact of the global financial crisis. 1990s 2009 2016 INFRASTRUCTURE FC begins financing infrastruc- I Amid the global financial The canal completes its ture improvements to expand crisis, IFC partners with four $5.5 billion expansion capacity of the Panama Canal other development banks financed in part by IFC, Zone, a linchpin of global trade. to provide $2.3 billion in doubling capacity and This includes financing the financing for a major upgrade making global seaborne construction of the Manzanillo of the canal itself—the largest trade less costly and International Terminal on the project at the canal since its more efficient. Atlantic coast, the Corredor Sur opening in 1914. toll road connecting Panama City and the airport, and the revitalization of the Panama Canal Railroad Company. 68 BEGINNING WITH INNOVATION 2000 2008 2010 2016 INDUSTRY IFC makes its first IFC builds a financial Kordsa, Sabanci’s The 16-year IFC investment with framework for Sabanci’s industrial fiber relationship is part of Turkish industrial energy joint venture company, expands the growth of Sabanci, and financial leader Enerjisa, helping it globally in three which now has a pres- Sabanci Group, become one of Turkey’s emerging markets— ence in 16 countries and helping its finan- largest private generation Argentina, Egypt, $17.6 billion in global cial arm, Akbank, companies, with 7.9 million and Brazil—with combined revenue. increase access to customers. This includes IFC’s support. finance for SMEs. a more than $700 million syndication—at the time, IFC’s largest ever. FINANCIAL 2002 FC begins its rela- I 2006 To scale up and leverage 2007 IFC provides 2016 Access Holding now INSTITUTIONS tionship with micro- finance specialist LFS’ success and exper- tise in microfinance, additional direct investment and holds stakes in 10 MFIs with a total of 570,000 LFS Financial IFC invests in Access advisory services borrowers. In addition Systems of Germany, Holding, a new commer- to AccèsBanque to multiple investments co-investing with it cial microfinance holding Madagascar, the first in the holding company and others to found company created with LFS new start-up created and the earlier banks Azerbaijan’s first and partner development by Access Holding. in Azerbaijan and commercial microfi- finance institutions to Madagascar, IFC has nance institution. invest equity in new and invested directly in the early-stage microfinance ones in Georgia, Liberia, institutions (MFIs) in Nigeria, Rwanda, other countries. Tajikistan, Tanzania, and Zambia. SOVEREIGN 1986 The Abu Dhabi 2005 Singapore’s Temasek 2010 AMC launches the 2013 Singapore’s GIC WEALTH Investment Authority invests Holdings co-invests alongside IFC in the IFC African, Latin American and becomes an anchor investor in the IFC FUNDS in the IFC-initiated BioVeda China Fund, the Caribbean Fund Global Infrastructure Emerging Markets first international venture with the Abu Fund (GIF). GIC, IFC, Growth Fund. fund directed at the life Dhabi Investment and GIF go on to invest It would subse- sciences in China. Authority, the in several transactions quently become Korea Investment together. one of the first Corporation, and investors in an IFC the State Oil Fund Asset Management of the Republic of Company (AMC) Azerbaijan as anchor fund. investors. 69 IFC: THE FIRST SIX DECADES Ghana, 2013 DECADES 4–5 1990s–2000s INCREASING INFLUENCE As the world grew increasingly open to market-based solutions, IFC’s influence also grew. It supported the growth of rising local companies, pushed the frontiers of privatization, and developed the most comprehensive framework then in existence to manage projects’ environmental and social risks. CHAPTER 5 BROADENING THE PRIVATE SECTOR'S ROLE 1992: Russia's first fully transparent public privatization auction, supported by IFC in the city of Nizhny Novgorod. B y 1996, IFC had been operating for 40 years public-private partnerships, which could unleash and had much valuable experience to share. the power of the private sector to increase efficiency and innovation, supporting sustainable and inclusive The core ideals of private sector growth that it had development by benefiting society widely, rather than always championed were no longer considered outside just helping a few. Shareholding countries put IFC at the mainstream of development thinking. Government- the center of the process. dominated models were no longer seen as sufficient. New formulas for public-private cooperation had to It was challenging work, especially in post-communist be found. countries with little tradition of private enterprise or accountability, and where weak capital markets at first “For many, the lesson of recent years has been that made it hard to find buyers. But IFC brought much to the state could not deliver on its promises,” the World the table—not only its commitment to innovation in Bank’s flagship World Development Report stated the private sector development, but a track record dating next year. “Transition economies have had to make to the mid-1980s of advising governments in the a wrenching shift toward the market economy, and privatization of state-owned companies, especially in much of the developing world has had to face up to the Latin America and Asia. A key focal point was the failure of state-dominated development strategies.” new Corporate Finance Services Department, created in 1989 to provide fee-based advisory services “Understanding the role the state plays in this environ- and financial assistance in corporate restructurings ment, for example in its ability to enforce the rule of law and privatizations. to underpin market transactions,” the report continued, “will be essential to making the state contribute more At first this growing knowledge-based side of IFC effectively to development.” mainly supported individual transactions rather than wholesale divestments of government assets. But This was the context of much of IFC’s work in the with the fall of the Berlin Wall in 1989, a much larger 1990s. Emerging markets had grown disillusioned with challenge emerged. Central and Eastern European past models of state-driven development and needed countries shook off Soviet control and looked to build viable market-based ones. new market-based economies quickly—a daunting task. Having demonstrated its expertise in this special- Nowhere was the need greater than in the sale of ized field elsewhere, IFC sent a number of project teams state-owned enterprises and the creation of new to the region to help. 75 IFC: THE FIRST SIX DECADES POLAND A key starting point was Poland. In 1990 its economy With these initial steps in place, in May 1991 a total of 1.9 began experiencing the painful effects of a rapid million shares in SFM were made available on the newly transition, seeing GDP contract by 12 percent revived Warsaw Stock Exchange in a two-week public and real income drop by nearly a third. Knowing it offering that raised the equivalent of approximately soon needed to show success, the new Solidarity $10 million. They were completely subscribed on the government sought IFC’s help in designing a first day. Some 36 percent went to small investors and privatization program for its entire economy, dubbed 16 percent to employees, leaving about 40 percent for the Multi-Track Privatization Program. IFC helped large investors. Foreign investment was at 24 percent, set the legal and institutional framework for privat- another sign of confidence. IFC received 3 percent of ization and selected early candidate enterprises for the shares as compensation for its services. And it sale. Among them was leading furniture manufacturer became the subject of a business school case study, Swarzedzkie Fabryki Mebli (SFM). illustrating how to restructure, value, and privatize companies in a transition economy. SFM had a high profile, exporting the majority of its output to IKEA and other clients in Western Europe. More important than the sum raised was the template Yet it was hobbled by inefficient operations and it set for future sales. Two more companies went excessive debt. After a detailed appraisal, IFC's team public a few weeks later. Similarly, their shares sold recommended a pre-sale operational and financial out quickly, building critical early confidence in the restructuring as an essential first step in building privatization process. In the end, the SFM sale was investor confidence. This included the government a “win-win” for all sides. It did more than put an inef- assuming most of the 3,200-employee firm’s debt, ficient enterprise under private ownership. It also which would then be retired by proceeds from a demonstrated the merits of free-market economics planned public offering. SFM’s management also to Poles and pushed their capital markets forward as implemented IFC’s recommendations for a series of a tool in financing development. quick technical improvements to factory efficiency and logistics. Subsequently, IFC helped Polish authorities achieve other high-profile successes in banking, cement, and A local bank with a newly developed computerized other industrial-sector privatizations. By the mid-1990s, share sale and distribution network then came on the government’s macroeconomic reforms, combined board, bringing 200 branches that could help spread with successful broad-based privatization, had jump- the word about privatization. The next challenge was started the Polish economy, putting it on the road setting up a valuation for the company in a local not just to recovery, but to steady long-term growth. environment where markets were still too weak to use book or liquidation value and where economic uncertainty made it difficult to project sales. 76 INCREASING INFLUENCE Poland: Launched with IFC's support in 1991, furniture company Swarzedzkie Fabryki Mebli's IPO was the first of its kind in post-communist Eastern Europe. 77 IFC: THE FIRST SIX DECADES RUSSIA There were even greater challenges in the former Soviet Union. There, IFC made a difference with small-scale privatization. This activity began in the city of Nizhny Novgorod, Russia’s main trade and commercial center before the 1917 Revolution, but until recently a city that had been completely closed to outsiders. Assembling a team of consultants from Poland, auctioneers from Czechoslovakia, and lawyers from Sweden and the United States, IFC devised a process that emphasized speed, transparency, and efficiency in the first sales of small state-owned businesses. Starting in April 1992, the Nizhny Novgorod city government worked with IFC’s concepts, running weekly auctions open to the public. By the end of the year, more than 2,000 businesses had been sold. The transfer of ownership was immediate, with new owners taking control within two days of the auction. The work went smoothly, establishing a framework for auctions in 28 other Russian cities, helping to boost local entrepreneurship and build a market-oriented culture. 1992: IFC supports privatization in Nizhny Novgorod, soon after the fall of the Soviet Union. 78 INCREASING INFLUENCE 1993: IFC widens its privatization work in Ukraine, helping local people bid to buy small shops via auction. UKRAINE Impressed, Ukrainian officials invited IFC to repeat the in business and management who could run the process in their own country, where local conditions operations more efficiently. By 1996, 45,000 small were quite different. While auctions may have been the state-owned enterprises had gone public in Ukraine, most efficient way to get a fair price for local shops and yielding $200 million in revenue for the government. small businesses, local officials and citizens believed Instead of the dilapidated, poorly stocked retail stores these would unduly favor rich citizens, and asked for they remembered from the past, Ukrainians could now other ideas. shop much like their counterparts in the rest of Europe. IFC’s team showed flexibility and worked with the As in Nizhny Novgorod, the program laid the ground- Ukrainians on an alternative, devising a plan to give work for changing the mindset of most Ukrainians. employees the right of first refusal. The process Instead of seeing capitalism and entrepreneurship started with the city of Lviv in 1993. Things went well. as something that would benefit only the elite, they Overall, nearly 80 percent of the businesses were learned it was an engine for a dramatic expansion sold to employee groups. Many of these groups later in consumer goods and a gratifying improvement in resold the businesses to entrepreneurs with expertise customer service. 79 IFC: THE FIRST SIX DECADES PRIVATELY FINANCED INFRASTRUCTURE Throughout the 1990s, IFC was at the vanguard In both cases, IFC’s financing allowed the of financing a new wave of privately funded infra- Philippines a way to carry out necessary infra- structure, helping clients in power, water, transport, structure investments quickly and efficiently with and telecoms find profitable models of bolstering projects that would also be profitable for their these essential services to support economic growth sponsors, without relying on constrained national and development. budgets. This model would be repeated many times over in the coming years. “The need is enormous,” Two early trendsetters were Build-Operate-Transfer Hopewell founder Sir Gordon Wu later said. “What projects in the Philippines, a nation with an external IFC, the World Bank, and MIGA can do is to play debt burden that severely limited the government’s the catalytic role, rather than finance everything ability to invest in infrastructure projects: themselves, which they just cannot. The need is just too big. But if they play the role of the catalyst, An $8.9 million combined debt and equity financ- • then that will facilitate greater cross-border flows ing package for International Container Services, of money.” Inc., the private manager of a new shipping terminal being built in Manila. Demand increased as reforms swept the developing An $11 million debt and equity financing bundle to • world during the decade, leading IFC to increase its Hong Kong–based Hopewell Holdings, developer specialized capacity in the sector with the creation of a 200 MW power plant supplying the national of a new Infrastructure Department in 1990. utility. In the power sector alone, IFC financed 57 projects in 37 countries with total costs of $14.4 billion in the 1990s, up from seven projects with total costs of $703 million in four countries in the previous three decades. But other sectors were critical as well, with IFC playing an important role in several projects with high demonstration effect. In telecom, in 1994 IFC invested $5.6 million in a small start-up mobile operator in Uganda that four years later became a new regional company, Celtel Transport: Improved infrastructure brings goods to market faster and more affordably. 80 INCREASING INFLUENCE Uganda: IFC's 1994 financing of Celtel helped spark Africa's mobile phone revolution. International. No one else was willing to finance it at IFC was also very active in water. In 2000, IFC the time, but IFC took the risk. At the time, Uganda teams advised the Bucharest municipal government had only 23,000 telephone lines for a population of on privatizing its troubled water utility RGAB, 17 million, with fewer than 50 percent of its calls which was losing nearly half of its output through going through. Headed by Mohammed Ibrahim, ill-functioning distribution systems. Under the fair Celtel would soon become the pioneer mobile phone and transparent bidding that IFC oversaw, Veolia company in Africa, contributing considerably to subsidiary Apa Nova won rights to the utility under the region’s dramatic growth in mobile phone use, a 25-year concession and quickly began turning it increased competition, and lower prices. This is now around. A 2011 independent evaluation found that considered one of the most transformational events the new operators had improved service consider- in the continent’s development history. ably, while keeping price increases 33 percent lower than would have been expected under a standard Later sold to Kuwaiti investors for $3.4 billion in public sector model. 2005, and then purchased by Bharti Airtel of India in 2010, Celtel worked closely with IFC for several While not all projects were so successful, the years to open widespread access to mobile phone overall changes brought by private participation service in Africa. By 2014, Africa had 608 million in infrastructure during these years were a true mobile connections, providing people at every game-changer in development—altering the scope income level not just with better communication, of private investment in emerging markets, while but with improved access to health care, education, also yielding major improvements in the delivery financial services, and delivery of public services. of basic public services. 81 IFC: THE FIRST SIX DECADES A Milestone Transaction: IFC chronicled its experience in the privatization of Kenya Airways in a 1996 case study. 82 INCREASING INFLUENCE KENYA Test cases needed to be undertaken not just in Central valuable transaction-based knowledge widely and and Eastern Europe, but in the rest of the world. A major contributing to policy dialogue, IFC launched a new milestone was the privatization of Kenya Airways. Lessons of Experience publication series that year, Like Poland’s SFM and many other businesses sold summing up its findings on the principles and practices with IFC’s help, Kenya Airways required extensive of effective privatization in the inaugural edition as operational and financial restructuring before it could follows: “The key dimension at each stage of privat- attract buyers. But the airline had the added dimension ization is political transparency, which maximizes the of being a highly symbolic national asset: Africa’s first popular perception that the playing field is level and flag carrier to be privatized. Retained as the Kenyan strengthens support for privatization.” government’s adviser on the planned transaction in 1994, IFC soon saw that the airline needed to partner The lessons were clear: Most of the enterprises in which with a major international carrier in order to regain IFC involvement was part of the privatization process stability and profitability after losing money over its had experienced poor performance under government entire 17-year existence. ownership. Most became profitable as newly private companies, providing improved delivery of goods and Following the restructuring moves, IFC’s team helped services. The report concluded that when government the government conduct a fair and transparent played its proper role as facilitator, enabling a fair selling selection process in which Dutch airline KLM acquired process, “IFC’s experience shows that privatization is 26 percent of Kenya Airways in January of 1996 well worth the effort in the majority of cases.” for $70 million. While KLM took over operational oversight of the airline and integrated it into its global While not successful in every case, the privatizations of network, total foreign ownership was limited to the 1990s were important not just in boosting the flow 49 percent, and Kenyans held the senior management of private-sector investment into developing countries, positions. A subsequent 1996 public offering on the but in improving people’s lives. The privatizations Nairobi Stock Exchange enabled 113,000 Kenyans also greatly expanded IFC’s playing field in helping to participate, helping ensure political support for to promote development, leading to a considerable the move. expansion of activities in the 2000s. Under private ownership, the airline rebounded and began a major expansion of both international and LESSONS OF EXPERIENCE domestic flights. By 1999 the improvement was clear: Ch. 5: Broadening the Private Sector's Role Kenya Airways had become the market leader both in flights between Europe and Africa and within Africa. Early success in privatization comes transac- By the time the Kenyan work got underway in 1995, tion by transaction, laying the basis for larger IFC’s Corporate Finance Services Department had cumulative impact. been at the forefront of privatization for a decade, having carried out 70 advisory assignments and financed 88 projects. Committed to sharing this 83 IFC: THE FIRST SIX DECADES 84 INCREASING INFLUENCE AFRICA: A STRATEGIC FOCUS PAYS OFF IFC has been helping build the private sector in With this greater local presence and expanded Africa steadily since its earliest years. But in the advisory services, staff, and resources, IFC was past decade, these efforts have scaled up signifi- able to work closely with development partners cantly—our total investments have more than and employ staff in some of Africa’s most difficult tripled, climbing to $2.4 billion in 2016. markets. That helped IFC launch special initiatives in key sectors such as infrastructure and agribusiness. In fiscal 2016 alone, in Africa IFC clients: As a result, IFC has been able to work with a wider range of clients and build a more robust pipeline • Generated power for 18.4 million people in Africa since the mid-2000s. Reached 1.25 million farmers • • Served 1.36 million health care patients Today, IFC has a broad strategic commitment to Africa and the resources to make a difference. It is They also provided nearly $9 billion in micro, small, helping bridge the continent’s infrastructure gap, and medium enterprise loans. increase productivity in agribusiness and other key industries, and lead inclusive business approaches The turning point came in 2003, when IFC put a that will help Africa’s private sector create jobs, renewed focus on Africa to take on a much greater raise living standards, and reduce poverty. role—increasing its resources for the region, opening more local offices, and providing a wider range of With the right strategy and resources, IFC has advisory services. demonstrated its ability to leverage its knowledge and deliver results in Africa. Bridging the Infrastructure Gap: Just one part of IFC's larger strategic focus on Africa. 85 IFC: THE FIRST SIX DECADES CHAPTER 6 SETTING STANDARDS FOR SUSTAINABILITY Sustainability: IFC has learned from its experience, sharing the results for wider impact. hroughout the 1990s, IFC began assessing to improved environmental and social guidelines that its operations with a wider lens, putting an became standard practice not just for IFC, but for the increased focus on sustainability. global commercial banking industry as a whole. In looking at ways to build up an economy’s productive LESSONS FROM CHILE capacity, project teams in extractive industries, infra- structure and other sectors recognized the need to The Pangue project began in 1989, when executives watch closely for effects on the environment and local at Chile’s main electric company, Endesa, approached communities, both positive and negative. What could IFC for financing. Needing to increase power supply be done to promote local participation, protect nearby for a fast-growing economy, the recently privatized areas from harm, encourage the use of international utility wanted to build a new $367 million run-of-river best practices, and ensure that residents shared in the hydroelectric station on the Bio Bio River in the foothills benefits of these large investments? Answering these of the Andes. Seeking to attract capital from private questions more comprehensively than before would investors, Endesa wanted the stamp of approval of a not only help IFC make better investment decisions, respected international organization. but would also promote stronger, more inclusive development outcomes. After a lengthy appraisal process that included consid- erable environmental and social review, in 1992 IFC A key turning point came with the lessons learned worked closely with Endesa and put together a $125 from IFC’s support for Pangue, a controversial 450 million package for the 450 MW project. The package MW hydropower station in Chile that opened in 1996. consisted of a $20 million equity investment along That project initially subjected IFC to an avalanche with $55 million to be lent directly by IFC plus another of outside criticism, culminating in an independent $50 million mobilized through loan syndications. report commissioned by the President of the World While lacking today’s extensive internal capacity in Bank Group. Controversial, yes, but the lessons from sustainability, IFC did make important contributions Pangue and other projects proved invaluable, leading to the project during the appraisal. Those included 87 IFC: THE FIRST SIX DECADES decisions with Endesa that acceptable environmental international NGO partners who questioned privat- and social assessments and mitigation plans would ization’s ability to foster sustainable development. subsequently be completed and made public, and that the recommendations would be adopted. IFC's IFC’s financing for the project was approved in involvement also resulted in the establishment of the December 1992, and the project was built over the Pehuen Foundation, an innovative, Endesa-funded next four years. But Chilean and international NGOs mechanism for bringing project benefits to the local protested so vigorously that in 1996 World Bank indigenous people. Group President James Wolfensohn commissioned an independent review from conservationist Jay Hair, the But the world was changing fast in 1992, with govern- former president of the National Wildlife Federation ments, companies, and development organizations in the United States. Hair’s review identified several now being held to higher standards of accountability. shortcomings in how IFC had carried out World Bank The proposal unleashed a firestorm of protest in guidelines for environmental and social protection. In newly democratic Chile. Civil-society organizations response, IFC conceded that some of its processes had were putting new emphasis on the environment and been flawed but stressed that the project had been indigenous peoples and expressing concern about the substantially improved from the environmental and cumulative impacts of Endesa-sponsored projects that social standpoints as a result of IFC’s involvement. With would follow Pangue. As the country’s first big private lessons of the review learned, IFC moved on, using the infrastructure project in this new era, Pangue became lessons as an opportunity to strengthen the approach. a rallying point for local advocacy groups and their In the end, Pangue sparked a significant increase in IFC's capacity to formulate robust environmental and social project review procedures, a mainstay of its business ever since. IFC hired its first social scientist, Sustainability: The began new work on ways to increase local participation foundation of the future: in Chile, and globally. in development decisions, and, in 1998, adapted the World Bank’s Environmental and Social Safeguard Policies for IFC use. By 1999 IFC had also greatly strengthened its transparency and accountability in two key ways: first by launching an improved public access to information policy that set a new standard for development finance institutions focused on the private sector, and second by establishing an independent Compliance Advisor/Ombudsman’s office to address the concerns of individuals or commu- nities affected by IFC projects and enhance the social and environmental outcomes. 88 INCREASING INFLUENCE Chile: Bio Bio River (below), site of an IFC-financed hydroelectric project. The learning it generated on social and environmental impact assessment became a landmark in IFC history. 89 IFC: THE FIRST SIX DECADES THE BTC PIPELINE By the early 2000s, this stronger expertise in envi- ronmental and social issues had become an essential part of IFC’s own value proposition—helping clients see that sustainability factors were not just risks to be managed, but could also become a key source of competitive advantage. As a result, IFC began providing leadership on much larger and more complex projects, such as the $4 billion Baku-Tbilisi-Ceyhan (BTC) pipeline running through Azerbaijan and Georgia to a terminal facility on the Turkish Mediterranean coast. Able to transport 1.2 barrels of crude oil every day, the 1,768 km pipeline is one of the longest of its kind in the world. Its route passes through a wide range of land-use types, affecting over 17,700 parcels of land used by households in 515 villages, and therefore involving a complex set of social and environmental issues. The project was developed by BTC Co., a company Showing how far IFC has come since the early days formed by the affiliates of 11 national and international of Pangue, BTC is now considered a landmark among The BTC Pipeline: oil producers with BP as the majority shareholder and projects of its type and size regarding the extent of A $4 billion, three-country operator. Construction began in spring 2003, with local stakeholder consultation and the amount of project, widely exports from the new terminal at Ceyhan commencing information disclosed as part of its environmental and recognized in June 2006. Approximately 70 percent of the project social impact assessment. Its construction program for its positive environmental costs were funded by a group of lenders including has been widely credited with exceeding expectations and social impact IFC, which provided a loan of up to $125 million from in terms of environmental and social management, analysis. its own account and a loan of up to $125 million in setting new benchmarks in transparency and envi- commercial syndication. ronmental and social standards for construction programs, and developing innovative practices along Before agreeing to provide financing, IFC and the the way. The BTC project demonstrates that sustain- wider lender group worked closely with the sponsor ability is good business. in designing an oversight mechanism to address the potential environmental and social impacts of the project and to monitor performance. This included LESSONS OF EXPERIENCE the development of a comprehensive environmental Ch. 6: Setting Standards for Sustainability and social action plan, the design and implementation of a transparent land acquisition and compensation Sustainable business is good business. program, local employment and training, community investment programs, and NGO capacity building. 90 INCREASING INFLUENCE Energy Investment: Contributing to a region's future. Stakeholder Dialogue: IFC leads consultations with local communities in Azerbaijan affected by the BTC pipeline as IFC noted in a 2006 case study. 91 IFC: THE FIRST SIX DECADES IFC'S SUSTAINABILITY FRAMEWORK Sustainability is critical to companies’ business In challenging contexts, IFC helps clients under- success. It’s critical, too, for their customers, sur- stand and manage the risks they face, partnering rounding communities, and broader stakeholder with industry and other stakeholders to find groups. innovative solutions that open up opportunities for economically, socially, and environmentally At the core of IFC’s Sustainability Framework are sustainable private investment—which contribute the Performance Standards, which help clients in turn to jobs and inclusive growth. This may avoid, mitigate, and manage risk as a way of doing include leveraging the capacity of the World Bank business sustainably. The Performance Standards, Group to address environmental, social, and which were the model for the Equator Principles, help governance challenges that are beyond the ability clients devise solutions that are good for business, or responsibility of a company to solve alone. good for investors, and good for the environment and communities. The Performance Standards guide IFC’s environ- mental and social due-diligence process, which inte- grates the client’s assessment of environmental and social risks with an understanding of the client’s commitment and capacity to mitigate and manage these risks. This review identifies any gaps between client practice and the Performance Standards in order to agree on a plan of action that ensures compliance throughout the life of the investment. 92 INCREASING INFLUENCE IFC PERFORMANCE STANDARDS 1. Assessment and Management of Environmental and Social Risks and Impacts 2. Labor and Working Conditions 3. Resource Efficiency and Pollution Prevention 4.  Community Health, Safety, and Security 5.  Land Acquisition and Involuntary Resettlement 6.  Biodiversity Conservation and Sustainable Management of Living Natural Resources 7.  Indigenous Peoples 8. Cultural Heritage 93 IFC: THE FIRST SIX DECADES THE EQUATOR PRINCIPLES Soon after IFC’s new Environmental and Social reflect the principles, allowing for project-specific Safeguard Policies took effect in 1998, they began flexibility and efficiency. attracting interest from several global commercial banks that realized they too needed to expand their IFC played a pivotal role in establishing and updating due diligence related to financing large projects the Equator Principles’ sustainability architecture. with significant environmental and social risks IFC initiated and led the drafting and implemen- and impacts. tation of the guidelines, with careful consideration given to large, complex, and expensive installations Dialogue continued for several years, and in 2003, of high environmental and social impact, such as 10 major banks met at IFC headquarters to launch power plants, pipelines, and transportation and an adapted version of the IFC guidelines that they telecommunications infrastructure. IFC continues called the Equator Principles. Since that time, these to support the community of implementing institu- have become the de facto standard for environmen- tions. Today 84 financial institutions in 35 countries tal and social principles throughout the financial have officially adopted the principles, covering over industry and have provided significant benefits to 70 percent of international project finance debt in all stakeholders. Each adopting financial institution emerging markets. implements its own policies and procedures to The Equator Principles: A sustainability framework for finance throughout the developing world, based on IFC's own guidelines. 95 IFC: THE FIRST SIX DECADES KNOWLEDGE AT IFC: CREATING, CAPTURING, AND SHARING EXPERTISE IFC is a knowledge-driven, knowledge-sharing The annual events are part of IFC’s commitment to institution. IFC learns from its clients. reflect on what it knows, then share that knowledge widely in the marketplace of ideas. Other initiatives that Driven by a longstanding commitment to innovation have been active now for more than 10 years include: in increasing the private sector’s role in development, IFC captures the key lessons of its work, learns • SmartLessons: short papers written by IFC pro- from them, and then shares them widely for greater fessionals for other practitioners, sharing first- impact worldwide. hand, practical lessons useful for colleagues doing similar work or facing comparable issues else- In 2006—just three years after overseeing the creation where. Written in case-study format, they capture of the Equator Principles—IFC and two Brazilian practical lessons from IFC’s work for a wider partners organized a groundbreaking seminar in public audience. São Paulo for Latin American financial institutions. • FT/IFC Transformational Business Awards: an Based on dialogue and interaction, the event showed 11-year collaboration with the Financial Times how the Equator Principles were fast becoming a highlighting groundbreaking, commercially viable new force for sustainability in the financial sector, solutions to today’s greatest development challenges. transforming markets in Latin America. Every Held each year in London with both a confer- year since, IFC has held similar Community of ence and awards ceremony, the high-profile event Learning knowledge-sharing events for Equator celebrates achievement in a wide range of areas. Principles financial institutions and others, allowing • Sustainability Exchange: an annual event addressing attendees to draw on IFC expertise in applying its economic, environmental, and social challenges Performance Standards and benefit from exposure and opportunities that face the infrastructure and to the experience of a wide network of practitioners. natural-resource sectors in emerging markets. Each year it brings together more than 200 global execu- tives and practitioners from companies, NGOs, the public sector, international development agencies, and academia. Recognition: The annual FT/IFC Transformational Business Awards honor cutting-edge private sector contributions to development. 96 INCREASING INFLUENCE Dissemination: The 2015 SheforShield report identified new opportunities in the women's insurance market—an emerging high-growth, high- impact industry. In addition to capturing and sharing its own knowl- working environments. The initiative does this by edge, IFC also at times creates knowledge—identifying building strong relations between managers and gaps in global learning on the private sector’s role workers at the workplace who, with its support, in emerging markets, and starting new vehicles that can then take ownership and responsibility for help fill them. Among them: continuously improving working conditions and eventually competitiveness at the factory. Better Handshake, launched by IFC, is the World Bank • Work has helped more than one million workers Group’s journal on public-private partnerships. while promoting and boosting business benefits. Its features, interviews, and columns offer unique SheforShield is a groundbreaking study published • insights into PPP projects in every region of the in 2015 by IFC, AXA Group, and Accenture. It world, showcase best practices in PPPs, and share found the insurance industry in emerging markets lessons that can benefit future PPP initiatives across has largely overlooked a key consumer segment: a variety of sectors. women. By 2030, according to the study, the • Better Work is a collaboration between IFC and insurance industry is expected to earn $1.7 trillion the International Labour Organization. Since from women alone—half of it in just 10 emerging 2007, it has worked to improve garment workers’ economies. lives by striving to secure safe, clean, equitable 97 IFC: THE FIRST SIX DECADES Nepal, 2011 DECADE 6 2010s DEMONSTRATION AND IMPACT Working on a larger scale than ever before, IFC now creates integrated solutions that extend the private sector's reach in development. It has devised new models to provide new solutions in the face of new challenges. Building on its history, IFC is taking steps to increase the private sector’s role in global development—setting a demonstration effect and increasing the impact. CHAPTER 7 INNOVATING FOR INCLUSION Inclusive Development: Driven by private sector innovation. I n 2013 the World Bank Group launched an ambi- finding new ways to bring the benefits of growth to a tious new strategy based on two goals: much wider segment of society than before. Ending extreme poverty by reducing the share of • It was always understood that the path to develop- people living on less than $1.25 a day to less than 3 ment and poverty reduction must be sustainable— percent of the global population by 2030 environmentally, socially, and fiscally. Boosting shared prosperity by improving the living • standards of the bottom 40 percent of the popula- IFC had a critical role: unleashing the power of the tion in every developing country private sector in pursuit of these goals. With most of its staff now in the field, IFC could now work more quickly Designed to help countries meet their most difficult and closely with local clients, offering them a broader development challenges, the strategy enabled the set of both investments and advisory services, often World Bank Group’s member institutions—IBRD, IDA, combining them into integrated solutions for increased IFC, MIGA, and ICSID—to work together more closely in impact. Fully leveraging its resources and relationships, pursuit of this shared vision. At its core was a drive for IFC was able to catalyze results at significant scale in greater inclusiveness—in other words, a commitment several key areas of the inclusiveness agenda. to addressing deep-rooted poverty and inequality, 103 IFC: THE FIRST SIX DECADES CODEVI JOB CREATION IN HAITI Textile plant CODEVI is Haiti’s largest private sector gap, empowering local entrepreneurs to distribute employer, with a workforce that has grown from water filters, solar lamps, and eyeglasses. 300 employees in 2006 to more than 7,000 today. Producing garments for top brands sold in Located just across the border from the Dominican the United States, CODEVI is rooted in IFC’s Republic, it brings skilled manufacturing jobs to long-standing relationship with sponsor Grupo M an area where other income opportunities are of the Dominican Republic. IFC financed the initial scarce. Indirect benefits may be even higher— construction of the Haitian factory in 2003, then 30,000 people in its community of Ouanaminthe co-led a debt restructuring in 2006 that kept the also derive their livelihoods from jobs associated project alive when Grupo M ran into financial with CODEVI’s operations: cooks, shop owners, hardship. Since the 2010 earthquake, IFC has mechanics, and others. And since municipal provided an additional $25 million that is helping authorities are unable to provide many essential increase the efficiency of the plant, which is on services, IFC and CODEVI have also worked with target to have 9,000 workers on its payroll in the social entrepreneurship NGO Ashoka to fill the next three years. Haiti: The CODEVI garment sector plant is now the country's largest private sector employer. 104 DEMONSTRATION AND IMPACT FINANCIAL INCLUSION Two billion people in developing countries lack access In 1997, IFC began working with one of the world’s to formal financial services—a powerful instrument largest poverty-fighting NGOs, Bangladesh’s BRAC, for reducing poverty, enabling them to build assets, which now reaches 138 million people in 12 countries. increase incomes, and reduce their vulnerability to economic stress. This is the reason that over the last With IFC’s support, BRAC started Bangladesh’s first two decades, IFC has placed priority on increasing stand-alone home loan institution, Delta BRAC Housing access to financial services for micro, small and Finance Corporation, which has since helped thou- medium enterprises, the backbone of the private sands of local families buy their own homes. In 2004, sector in country after country. IFC’s global network IFC followed by becoming a founding shareholder in of more than 800 financial institutions in more than BRAC Bank, a start-up targeting Bangladesh’s then 100 developing countries—microfinance institutions, largely untapped SME market. IFC’s investment and commercial banks, leasing companies, private equity ongoing advice in IT systems, marketing, and new funds, and others—is an invaluable tool for doing so. product development helped the bank more than double its loan portfolio between 2006 and 2008. A pioneer in commercial microfinance since 1996, IFC is now the industry’s largest investor, with a more In 2013, IFC took a $10 million equity stake in BRAC than $2 billion portfolio. The work in expanding access Bank’s new mobile financial services subsidiary, to microfinance is an important part of reaching the bKash. Using a branchless banking model, it leverages World Bank Group target of achieving universal access Bangladesh’s ubiquitous mobile phones as a low-cost to finance by 2020, especially in opening up private platform for providing secure financial services to sector–led innovation and investment in areas such low-income people, including many in rural areas. as mobile money accounts that help drive financial Alongside the investment, IFC assisted bKash with inclusion. its corporate governance, which would be critical for the company to attract private sector investors in the Equally important is the emphasis on small and future. Its country’s digital finance pioneer, bKash medium enterprise finance. At its September 2009 today has 23 million users, standing as a global leader bKash: Access to finance for 23 Pittsburgh summit, the G20 countries named IFC its in increasing financial inclusion—providing services million people in SME finance adviser, citing its decades of experience that are convenient, affordable, and reliable. Bangladesh. as an international agenda-setter in the field. Today these two worlds of micro and SME finance have come together in a larger global financial inclusion agenda, requiring IFC’s leadership in the development of technology, financial products, and policy to help financial institutions reach a greater number of people in a more cost-effective way. As in everything IFC does, client relationships have been the key. 105 IFC: THE FIRST SIX DECADES GENDER Since 2004, IFC has also provided investment and Complementing these efforts is SheWorks, a global advisory solutions to create equal opportunity in the private-sector partnership focused on increasing private sector for women, who are a powerful engine women’s employment that IFC helped launch in of economic growth, whether as entrepreneurs, 2014. It brings together 10 leading companies that employees, suppliers, or corporate leaders. In 2005 have pledged to implement measures proven to it became the first development-finance institution enhance women’s employment opportunities—such to support the Global Banking Alliance for Women, as mentorship programs, flexible working arrange- a knowledge-sharing industry group that now brings ments, and leadership training to increase diversity together 44 financial institution members committed in management. to reaching and extending the women’s market for finance in 135 countries. Beginning with a combined investment and advisory "Gender equality is smart package for Nigeria’s Access Bank in 2006, IFC then economics. developed its Banking on Women program, which has since helped 38 emerging market financial institutions enter the women’s market, providing $1.1 billion in "It has a multiplier effect on new financing for women entrepreneurs. In 2014, IFC impacts across a spectrum formed the Women Entrepreneurs Opportunity Facility in partnership with Goldman Sachs' 10,000 Women of development outcomes. program and raised additional external capital through A country can’t grow if it AMC’s Women Entrepreneurs Debt Fund. doesn’t give opportunity to half of its population." In Pakistan, this same program helped IFC's long- time client HBL—one of the country’s largest banks, PHILIPPE LE HOUÉROU, THEN-VICE PRESIDENT FOR SOUTH ASIA, with 1,700 branches worldwide—launch customized THE WORLD BANK women’s banking products in 2015. In the West Bank 2014 and Gaza, another longtime client, Bank of Palestine, has used the program's advisory services over the past two years to introduce an innovative suite of finan- cial and non-financial products designed especially for women. These include a mini-MBA-like training program that provides established women-owned busi- nesses with the critical skills they need to grow. Those who have gone through the program are automatically pre-approved for the women’s business support loans. Gender Balance: A cornerstone of sustainable development. 106 DEMONSTRATION AND IMPACT DOING BUSINESS In 2003, IFC and the World Bank together launched The Doing Business reports have now inspired Doing Business, a series of annual reports inves- hundreds of regulatory reforms worldwide. In tigating the regulations that enhance business the past 12 years, more than 2,600 reforms have activity and those that constrain it. been recorded globally in the areas they measure. Ongoing support from IFC and World Bank teams The reports have been highly influential from the has helped reform-minded governments make these outset, serving as a useful tool in encouraging coun- improvements to their investment climates. tries to promote more efficient business regulation. Offering measurable benchmarks for reform, they Globally, Georgia is the country that has improved also serve as a resource for academics, policy- the most in the areas measured by Doing Business makers, journalists, business leaders, and others over the years. During this period, output per interested in the investment climate of each country. capita in Georgia increased by 66 percent, driven Today the reports present quantitative indicators in part by a series of investment climate reforms on business regulations and the protection of the government enacted: eliminating the paid-in property rights that can be compared across 185 minimum capital requirement for starting a busi- economies—from Afghanistan to Zimbabwe—and ness, introducing electronic systems for paying over time. taxes, adopting an insolvency law introducing both reorganization and liquidation proceedings, and many others. Other regions also have specific nations that stand out for their most-improved status in the areas measured by Doing Business: Rwanda in Sub- Saharan Africa, Colombia in Latin America and the Caribbean, Egypt in the Middle East and North Africa, China in East Asia and the Pacific, and India in South Asia. 107 IFC: THE FIRST SIX DECADES Philippines: The Asian School of Hospitality Arts (ASHA) builds students' skills, and job prospects, in the hotel and restaurant industries. 108 DEMONSTRATION AND IMPACT India: NephroPlus provides affordable, innovative health care. HEALTH AND EDUCATION For more than 20 years, IFC has also helped client IFC also helps build capacity in private education to companies expand access and improve quality in both create more opportunities for children, youth, and health and education. working adults. This makes a difference across the developing world, where employers often have posi- In this time IFC has become the world’s largest multi- tions to fill but can’t find enough qualified people to lateral investor in private health care in emerging take them due to skills shortages in the local economy. markets, holding an active portfolio worth about $1.3 billion in health services, including hospitals, IFC’s $775 million portfolio of education projects diagnostic chains and HMOs, and life sciences like develops skills and enhances employability in more pharmaceuticals, vaccines, and medical technology. than 25 countries, including the Philippines, where youth represent 80 percent of the unemployed. There In the most recent fiscal year, IFC-supported health the Asian School of Hospitality Arts (ASHA) has projects provided care for 31.8 million patients world- used $36 million in financing from IFC to expand its wide, often through innovative delivery models that courses and apprenticeship programs in hotel, restau- bring quality care to lower-income groups that previ- rant, and hospitality management. Since 2006, nearly ously could not afford them. In India, more than 90 10,000 students have obtained a degree or certifica- percent of the 230,000 people newly diagnosed with tion from ASHA, resulting in a 95 percent employment chronic kidney disease each year die within months due rate within 60 days of graduation. to lack of treatment. Reaching patients in lower income brackets presents a particular challenge, given the reluctance of established providers to reduce prices. LESSONS OF EXPERIENCE So in 2014, IFC made its first healthcare venture capital Ch. 7: Innovating for Inclusion investment in South Asia, taking a $7 million stake in NephroPlus, whose low-cost business model allows Broad-based access to financial services and it to offer dialysis services at prices 30 to 40 percent other needs is critical for building long-term below market prices. Today it has 61 low-cost dialysis prosperity and fighting poverty. centers across India, sharing IFC's global commitment to overcoming obstacles to the development of acces- sible and affordable healthcare facilities. 109 IFC: THE FIRST SIX DECADES CHAPTER 8 PROVIDING NEW PLATFORMS IFC investment platforms mobilize private sector capital for today's greatest development challenges. D emand for IFC’s products and services got a major boost in April 2008, when World Bank increased dramatically in the mid-2000s, Group President Robert Zoellick publicly proposed leading to a significant increase in investment a “one-percent solution,” calling on sovereign wealth volume and advisory services engagements. Many funds to put one percent of their assets into African viable models with proven track records of increasing countries, and asking for IFC to set up new structures the private sector’s role in development were now in to encourage them. place and ready to mobilize outside capital at even higher levels than before, if efficient new platforms The urgency for this new platform—and also the could be created. challenges—increased as 2008 went on. The global financial crisis, centered in the wealthy countries, It was time to put new focus on a large and growing threatened to shrink the available pool of capital source of capital that development finance institutions that might flow to the developing world. Setting up until then had largely left untapped: institutional the right kind of platform became even more urgent. investors. The response came in early 2009 with the creation IFC ASSET MANAGEMENT COMPANY of IFC’s Asset Management Company (AMC), a new vehicle for mobilizing and managing third-party funds By 2007, sovereign wealth funds alone held more to invest in private enterprise in IFC’s client countries, than $3 trillion in assets. Pension funds in wealthy now with more than $7 billion of external capital countries also had accumulated large balances. Yet raised. Set up as a wholly owned subsidiary, with a both were investing very little in the countries most responsibility to its investors, AMC manages funds in need of capital—emerging and frontier markets. with dedicated investment teams that can choose Leveraging its own extensive footprint and its invest- to invest in any specific IFC project that fits a fund’s ment approach, policies, and Performance Standards, investment parameters. AMC relies extensively on IFC began to explore ways to create a credible new IFC’s broad pipeline of potential projects, and draws vehicle to attract these investors. The early efforts on valuable synergies with other IFC staff. 111 IFC: THE FIRST SIX DECADES AMC uses a private equity approach that complements has high development impact. IFC and ALAC supported IFC’s longtime syndication efforts with financial insti- Saham’s ambitious growth strategy, including tutions, where outside investors elect to participate in acquisitions in key markets such as Angola, Kenya, loans on a project by project basis, while relying on IFC and Nigeria. In 2016 IFC and ALAC sold their shares to do most of the due diligence and loan structuring. to the Sanlam Group, a South Africa-based global AMC operates differently, raising the capital upfront insurance company, realizing an attractive return for and managing the funds actively from beginning to end. investors. Meanwhile, Saham is well positioned to In its first seven years, AMC has raised billions of dollars integrate its recent acquisitions into a truly pan- from a wide variety of institutional investors, including African insurance platform with the critical support sovereign wealth funds, pension funds, and develop- and operational knowledge Sanlam can provide as an ment finance institutions, across 12 regional, sectoral, experienced global insurance operator. and special purpose funds, including equity, debt, and fund-of-funds products. The capital AMC has raised helps bring private sector solutions to many of today’s great development How did AMC raise so much money in the wake of the challenges. In Brazil, more than 100 million people— financial crisis? There are several reasons it was able about half the population—lack wastewater collec- to do so. Important seed financing for its first fund tion services, and only a third of sewage is treated was provided by the Japan Bank for International nationwide. The country’s 5,500 municipalities have Cooperation (JBIC). Furthermore, IFC itself has typi- been tasked with drawing up sanitation improvement cally invested in each fund, helping to provide an align- plans in order to inform policy decisions and invest- ment of interest and good fund-raising momentum. ment needs. Investors were also attracted by AMC’s governance structure and by IFC’s financial track record, espe- In 2012, IFC provided a corporate loan to Aegea cially the strong performance of its equity invest- Saneamento, one of Brazil’s leading providers of water ments in the preceding decade, which was well above and sanitation services, to help it expand throughout industry benchmarks. the country, including to frontier regions in the north and northeast of Brazil, while following IFC’s Certainly AMC had to overcome investors’ qualms Performance Standards. Then in 2014, the $1.2 billion about working with an international development IFC Global Infrastructure Fund (GIF), which pools organization. Wouldn’t financial returns always be investment capital from 10 sovereign wealth funds secondary to development goals? The answer was and pension funds, became a shareholder. GIF and the same as IFC had been giving for decades: The IFC have each invested approximately $40 million best way to achieve sustainable development is to of equity in Aegea over several rounds of funding. help build profitable, growing businesses. Aegea is using this capital to significantly accelerate its growth and improve services, all with industry For example, in 2012 the $1 billion IFC African, Latin leading financial performance. The company now American and Caribbean Fund (ALAC) invested operates water concessions in 44 Brazilian municipal- $47 million in Saham Finances (Saham), a Morocco- ities in eight states, and provides water and sanitation based insurance company with operations in Morocco services for nearly 3.7 million people. This includes and several countries in Sub-Saharan Africa. As water supply and sewage treatment in Barcarena, in Sub-Saharan Africa has one of the lowest insurance Pará state, where less than 2 percent of sewage was density and penetration rates in the world, broadening treated when Aegea took over the concession. access to insurance protection to the underserved 112 DEMONSTRATION AND IMPACT In Asia, the $3 billion IFC Capitalization Fund has invested $40 million in longtime IFC client ACLEDA Bank, Cambodia’s largest provider of microfinance. This capital injection is supporting the bank’s domestic growth and regional expansion into Lao People’s Democratic Republic and Myanmar, allowing it to serve more businesses. It is an important part of a long-term partnership with IFC that has enabled ACLEDA Bank to reach more than 2.5 million of the poorest people in Cambodia and support micro and small businesses throughout the Mekong region. With strong governance, dedicated investment teams, and the ability to select diversified portfolios from IFC’s pipeline, AMC provided an attractive value proposition to its investors even in the wake of the financial crisis. Its achievement in combining commercial capital with development needs soon led to the best success of all—other asset managers from the private sector increasingly looking to attract institutional investors into emerging markets. The significant amounts of third-party capital AMC raised in turn had a major effect on IFC itself, increasing its ability to fund larger projects, take a more active portfolio management approach, and explore other ambitious ideas for directing private capital toward development needs. IFC Asset Management Company provides growth capital to emerging-market companies, including Brazilian water company Aegea Saneamento and Cambodian micro, small and medium enterprise lender ACLEDA Bank. 113 IFC: THE FIRST SIX DECADES Ethiopia: Afriflora is creating 5,000 jobs in the flower export industry. CO-LENDING PROGRAMS IFC also found new ways to expand capital support co-lending partners to include investors that do not for its loan program. have the capacity to invest on a deal-by-deal basis. The loan-syndications program—unveiled in 1959— In Turkey, SAFE partnered with IFC, development has now mobilized approximately $50 billion from more finance institutions, and commercial banks on a than 500 financing partners for over 1,000 projects in €433 million senior loan package for the development more than 115 emerging markets. At the end of fiscal of a 1,550-bed health campus in Adana. The project is 2016, IFC’s syndications portfolio totaled $16.6 billion. part of a public-private partnership program launched by the Turkish government. In Ethiopia, SAFE and IFC To make it easier for others to join in these investments, together provided €90 million to the country’s largest in 2009, IFC established the Master Cooperation rose producer and exporter, Afriflora, which will use Agreement to standardize steps that lenders need the funding to expand production by 60 percent, to take when co-financing IFC projects in developing install water recycling systems, and create jobs for countries. Since then, 28 development finance insti- 5,000 more people. tutions have become signatories. They have provided $2.3 billion to IFC clients over the past six years. Working through MCPP, SAFE also contributed $20 million to a $60 million debt facility for Canadian In 2013, the Managed Co-Lending Portfolio Program Solar Inc. to finance manufacturing operations in (MCPP) was set up to attract funds from investors Vietnam and potentially in other countries in Asia looking to diversify in emerging markets. Similar to a and Latin America. This investment will support clean passively managed index fund, MCPP lets investors energy generation and climate technology transfer participate in IFC’s future loan portfolio based on within emerging markets and is expected to create pre-agreed investment criteria. The program got off 1,000 direct and indirect jobs in local communities. to a strong start in 2013 with a $3 billion pledge from China’s State Administration for Foreign Exchange Tapping into these kinds of new funding sources—such (SAFE). Rather than lending directly in developing as sovereign wealth funds, pension funds, insurance countries, through MCPP, SAFE leverages IFC’s broad companies, and others—is critical to the future of footprint and existing expertise. development finance. IFC is uniquely positioned to intermediate these funds, given its successful Under MCPP’s structure, outside investors provide experience with all these platforms, and will continue capital on a portfolio basis, which can be deployed to investigate new opportunities for large-scale mobi- by IFC in individual investments across all regions lization in the future. and sectors in tandem with IFC’s flow of business. MCPP investor approval is sought pre-mandate; project appraisal, approval, commitment, and super- LESSONS OF EXPERIENCE vision are managed directly by IFC, with the MCPP Ch. 8: Providing New Platforms investor passively following IFC’s decisions. MCPP complements IFC’s existing B Loan and Parallel Loan If the conditions are right, institutional platforms. Through MCPP, IFC can expand its base of investors can join banks as major sources of growth capital for emerging markets. 115 IFC: THE FIRST SIX DECADES IFC AND TRADE Trade is the lifeblood of the world economy, driving In 2005, the GTFP network had just 20 banks economic growth and creating jobs. Trade finance supporting $300 million in trade. It now covers plays a crucial role in making international trans- more than 500 banks in 150 countries, and last year actions happen, yet is out of reach for too many supported more than $6 billion in trade. emerging market firms. IFC continues to adapt its trade products to meet This is why in 2005 IFC started its Global Trade market needs and in difficult times. When the Finance Program (GTFP). IFC’s backing extends 2008 global financial crisis broke—threatening the and complements banks’ capacity to deliver liquidity of banks in the developing world—IFC trade finance, providing risk mitigation on a per- responded at the London G-20 meeting, creating transaction basis through a growing network of the $4 billion Global Trade Liquidity Program. issuing and confirming banks. The program gives priority support to trade flows that promote critical sectors such as agriculture and energy efficiency, while focusing on SME importers and exporters, and trade between emerging markets—particularly in lower-income countries. Burkina Faso: IFC support helps small-scale farmers export cotton. 116 DEMONSTRATION AND IMPACT The product suite now has expanded to include the farms, securing livelihoods and economic stability Global Warehouse Finance Program, Commodity at a difficult time. Finance Solutions, Structured Trade, as well as Supplier Finance—all helping to boost growth in IFC’s Climate-Smart Trade Program makes it easier emerging markets. for emerging market companies to purchase green technology. In June 2015, IFC and Bank Al Habib To date, IFC’s trade solutions have supported over supported the import of a $32 million, 50 MW $130 billion in global trade, all directly linked to German wind turbine by Pakistani power company the movement of specific goods across emerging Yunus Energy, providing a reliable, sustainable market borders. source of electricity boosting the country’s gener- ation of clean energy and supporting cross-border In landlocked Burkina Faso, 80 percent of the people trade; critical for economic growth. depend on agriculture, with cotton a major export. Amid political instability in 2014 and 2015, IFC and In these and many other cases, IFC’s support for Société Générale put together a $77 million facility global trade is making a difference in lives around so Sofitex, the largest local processer and exporter the world. IFC is adapting to engage the future, of cotton, could continue to buy from smallholder responding to the WTO’s call for more support for global trade. 117 IFC: THE FIRST SIX DECADES NEW PLATFORMS FOR: SOLAR POWER The sun has enormous potential as an energy source in frontier regions. In Sub-Saharan Africa, for example, two-thirds of the population lacks access to electricity, while grid-based power generation capac- ity is far short of what is needed. Many countries have abundant potential, but they have struggled to develop utility-scale solar power plants due to challenges such as lack of scale, lack of competition, high transaction costs, and high perceived risks and costs of capital, among others. In response, in 2015 IFC launched Scaling Solar, bringing together a suite of World Bank Group services under a single engagement aimed at creat- ing viable markets for solar power in client coun- tries. The “one-stop shop” program aims to make privately funded grid-connected solar projects operational within two years and at competitive tariffs. Now being implemented across multiple countries, it is creating a new regional market for solar investment. The program’s integrated platform reduces risks Utility-Scale Solar: for investors and cuts costs for customers through A clean energy competition and simplified procurement. The solution, and major package of advice, finance, insurance, and risk IFC priority. management has been proven to help attract private sector interest. Its first bidding auction, held in May 2016 in Zambia, led to some of the world’s lowest-priced solar power to date. Major U.S. and European firms are now building new solar plants to boost Zambia’s power supply by 5 percent. Based on this early demonstration effect in Africa, Scaling Solar is now being rolled out in other regions. 118 DEMONSTRATION AND IMPACT Bangladesh: A focal point of IFC work to support garment sector clients in improving working conditions. SUSTAINABLE SUPPLY CHAINS The garment and textile industry employs 60 million at more favorable interest rates than are typically people around the world—many of them young available in local markets. Launched in 2010, women with few other opportunities to earn their it operates on an electronic platform called GT own income and be independent. Ensuring strong Nexus, an online system that allows multiple buyers, environmental and social performance in this suppliers, agents, cargo forwarders, and other intensely competitive sector can be a challenge, logistics providers to collaborate and manage the especially in places where laws and governance flow of goods, funds, and trade information. For are weak, leading some companies to disregard fire some buyers, such as Levi Strauss and Co. and and building safety and worker rights. Audits and Puma, IFC offers suppliers tiered pricing of credit, supervision are important, but suppliers also need creating incentives for SME suppliers to improve financing to invest in factory upgrades and financial environmental and social sustainability. In 2007, incentives to encourage them to make investments IFC also joined forces with the International Labour in better working conditions. Organization to launch the Better Work program, which mobilizes global brands, factory owners, IFC offers a direct financial incentive to improve and workers to address poor working conditions environment and social standards in the garment and improve competitiveness in the garment sector. industry through its $500 million Global Trade Today the program is active in seven countries and Supply Finance program. The program provides has reached more than 1.5 million workers. short-term finance to emerging-market suppliers 119 IFC: THE FIRST SIX DECADES Mongolia, 2013 CHAPTER 9 WORKING IN THE FRONTIERS Yemen: Amid fragility and conflict, IFC's Business Edge training program has helped 15,000 local entrepreneurs build their management skills. ith a $52 billion portfolio in more than advisory services. By catalyzing the powerful forces of 100 countries, a powerful global client and entrepreneurship and finance, its efforts help create partner network, and deep knowledge of both jobs, modernize infrastructure, and spur the economic global industries and local markets, IFC is now well growth needed to increase stability and reduce the positioned to increase the private sector’s role in some risks of sliding back into conflict. of today’s most pressing challenges, starting with fragility, conflict, and climate change. In supporting these countries, IFC draws from the same menu it has built for other emerging markets: It is a difficult, demanding agenda—but one where improving their investment climates; increasing access IFC’s role in bringing together private investment and to finance (especially for small businesses); and mobi- development remains urgent and essential, and where lizing domestic and international investment for job great opportunities and untapped potential remain. creation, productivity growth, and poverty reduction. The lessons from six decades of experience give the institution the basis it needs to go forward. In the early decades, the destroyed infrastructure, weakened government institutions, social trauma, and political instability of fragile states often made it FRAGILITY AND CONFLICT hard for IFC to engage in fragile states. But by working closely with its donor partners in the late 1990s and By 2030, half the world’s poor will live in fragile and early 2000s, it made some early moves that brought conflict-affected areas. IFC is an integral part of longer-lasting results. the international effort to move these fragile states away from the margins. One of IFC’s first investments in fragile states came in 1996 in Bosnia and Herzegovina—less than a year after In partnership with the World Bank Group, development the signing of the Dayton Accords that ended Europe’s partners, and clients, IFC stimulates private investment bloodiest conflict since the end of World War II. There, and growth in fragile states, often leading the way with IFC helped the German development company IPC 123 IFC: THE FIRST SIX DECADES Iraq: An IFC-financed power plant strengthens electricity supply in the Kurdistan Region. launch the country’s micro and SME finance pioneer, As Myanmar’s conditions improved, IFC began now ProCredit Bank. From there, IFC went on to invest engaging with the country as part of a coordinated in the bank’s parent company ProCredit Holding, which World Bank Group effort in 2012. In the past year IFC has since built a 17-country, €4.5 billion microcredit made its first investment in the country’s transpor- portfolio and 20 percent of its advisory services and tation sector, with an initial $40 million convertible continues to grow. loan to upgrade the Myanmar Industrial Port, a key trading center that handles 40 percent of the coun- Then in 2001, three years after Cambodia returned to try’s container traffic. Elsewhere in the country, IFC stability, IFC introduced a set of Khmer-language SME also agreed to $150 million in loans to help Ooredoo management training products based on a model it Myanmar roll out a mobile telecommunication network. had been using in Vietnam. IFC has also worked with the central bank to develop a credit-reporting system, helped to finance commer- In that first year, Cambodian entrepreneurs built their cial banks in making small loans, and supported the skills by buying more than 7,000 inexpensive self- reviving tourism sector. study workbooks and attending workshops offered in cooperation with a leading business school in Bangkok. In Iraq, where the power sector is critically underdevel- This was the start of IFC’s Business Edge program, oped and the national grid is able to supply only four which accredited local partners have since used to to five hours of power a day, this year IFC arranged a train 159,000 people across 67 countries. $375 million financing for Iraqi power investor Mass Global Energy Sulimaniya Limited (MGES). The financing Over the years, IFC’s work in fragile states has taken will go toward MGES’ conversion of an existing 1,000 MW on new importance. Today it represents more than gas-fired power plant in the Kurdistan Region to a 3 percent of IFC’s investment portfolio and continues more energy-efficient 1,500 MW plant, and will help to grow. From 2012 to 2015, IFC invested $2.5 billion MGES finance a 3,000 MW power plant near Baghdad. in fragile states, roughly half from its own account IFC has also partnered with Lafarge Cement in Iraq, and half from outside investors. By 2016, 19 percent providing a $70 million loan that financed Lafarge’s of its advisory work was also in fragile states, valued at acquisition and rehabilitation of the Karbala cement $16 million. One out of five IFC-supported public- plant, bolstering the construction sector, which is also private partnership transactions was in these coun- a key source of jobs. tries, supporting critical sectors such as power, transport and health. 124 DEMONSTRATION AND IMPACT In addition to these large-scale transactions, IFC uses customized solutions that stimulate new private sector activity. Its Conflict-Affected States in Africa Initiative (CASA) is supporting private sector growth in 13 countries, helping them strengthen their business environments and attract investment. Supported by donor partners in Ireland, the Netherlands, and Norway, CASA has been expanding through a combi- nation of market intelligence, funding, and knowledge management, while increasing its focus on supporting women in business. Sierra Leone: IFC's SME Ventures program Complementing these upstream efforts is the SME helps the economy bounce Ventures program, created in 2008 with a $100 million back from conflict, investing in job-creating companies like allocation from IFC. The program invests in fund bottled water producer Grafton. managers in fragile states and provides risk capital for high-growth SMEs. With this model, IFC is demon- strating to global financiers that local companies have huge potential to grow, even in tough markets. SME Ventures has created four funds, which work in coun- tries such as Liberia, Sierra Leone, and the Democratic Republic of Congo, and provides technical assistance to entrepreneurs in management skills and industry knowledge to place them on surer footing for growth. 125 IFC: THE FIRST SIX DECADES CLIMATE BUSINESS Along with the rest of the World Bank Group, IFC has starting to track the climate-smart components of its also joined the growing international consensus in investments and advisory services in 2005, IFC has favor of aggressive climate action. IFC first began provided more than $13 billion in long-term financing working on climate change in the early 1990s, at for climate-related projects. the same time it was increasing the overall focus on sustainability and adding more environmental IFC’s track record in supporting climate-smart specialists to its staff. projects across emerging markets is significant. In Panama, it helped bring to life Penonome, currently In the 1990s and early 2000s, IFC worked with clients the largest wind farm in Central America and the on a wide range of projects, from compact fluorescent largest grid-connected wind farm in the country, lighting to solar panels, and helped build a market for generating roughly the equivalent of 5 percent of carbon emission credits. Advisory services were a key Panama’s total energy demand. IFC’s support for part of helping clients deploy the new technology and seven simultaneous solar photovoltaic plants in business models. Jordan will boost the country’s use of renewables and help transform its energy sector. The seven plants These efforts have increased dramatically in the new have a combined capacity of 102 megawatts, and will millennium. Starting in 2006–2007, IFC was part of become Jordan’s first private industry-scale solar the World Bank Group’s new focus on climate change photovoltaic parks, helping cut carbon dioxide emis- and the transition from clean energy investments to sions by 123,000 tons annually. And in Turkey, IFC plans tying climate change and development. Since invested in Odeabank, which will provide a further $160 million in green building mortgage loans for Turkish homebuyers by 2019. In 2012, AMC established the IFC Catalyst Fund, attracting investors to a fund investing in other funds focused on renewable energy and energy efficiency in emerging markets. By 2015, two-thirds of IFC’s direct power invest- ments—amounting to $893 million—were in renew- able energy, especially solar and wind projects, in addition to advising governments on regulations and public-private partnerships in these areas. Investments in energy efficiency also rose steadily over the 2010s, reaching $205 million on the industry 126 DEMONSTRATION AND IMPACT Renewable Energy: A key to a greener global economy, now comprising the majority of IFC's power sector investments. side alone by 2015. Another $391 million went to Following the UN Paris Climate Change Conference support green building codes, finance green construc- of 2015, where nearly 200 nations pledged to reduce tion, and help banks adjust their mortgage policies their greenhouse gas emissions, IFC pledged to accordingly. ensure that climate-related investment will represent 28 percent of all annual financing commitments by Besides direct financing, IFC worked as usual to 2020. As part of this, the institution has announced develop structures to attract greater private invest- plans to move into new climate markets, create new ment. By 2015, IFC had issued almost $5 billion in investment vehicles, and increase internal tools and green bonds focused on low-carbon projects. It also support, while also catalyzing $13 billion of external participated in the Masala bonds issued for Yes Bank finance in new products to de-risk and aggregate in India, which raised 3 billion rupees ($44 million) to climate projects. be on-lent to climate-related projects. This is on top of IFC's ongoing investments in financial intermediaries like commercial banks, which increasingly supported LESSONS OF EXPERIENCE climate-related credit lines and trade finance for small Ch. 9: Working in the Frontiers and medium-size firms. And supporting all of this were efforts to “green” the broader financial markets The menu of options being used in with standards and regulations to enable greater development finance today can be investment. tailored to tougher markets to achieve lasting development impact. 127 IFC: THE FIRST SIX DECADES BRINGING THE INTERNET TO THE “OTHER 3 BILLION” Broadband Internet is a crucial portal to the global IFC recognized the transformative potential of the economy. But traditional, land-based cables don’t new technology. It rallied support from development reach much of the world—especially people and finance institutions to close the project’s funding businesses in many developing countries. gap. By pledging $70 million from its own account and mobilizing $170 million in parallel loans from In 2010, for example, people in Africa accounted other institutions, IFC helped fulfill the remainder for just 1 percent of fixed broadband subscriptions of O3b’s investment goals. across the globe. Today, O3b operates 12 satellites that are delivering IFC set out to address that problem—by funding Internet access to more than 10 million people and a landmark satellite-based Internet development 60,000 businesses in 31 countries. Those numbers are project. O3b Networks had a novel idea: bring expected to triple as O3b expands its constellation Internet access to the “other 3 billion” by launching of satellites to 20 in the coming years. some of the first commercial Medium Earth Orbit satellites. Such satellites offered the potential of The biggest beneficiaries have been users in sparsely delivering high-speed broadband access, at much populated, landlocked, or small island countries lower cost. that previously had little or no broadband access— including several fragile or conflict-affected states such But the initiative faced a critical hurdle: many as the Democratic Republic of Congo, Madagascar, potential investors were nervous. Though the project Solomon Islands, Somalia, and South Sudan. was initially backed by a number of high-profile investors—including Liberty Capital, HSBC, and Google—many commercial banks deemed the venture too risky. For good reason: 03b’s tech- nology was new, credit markets were volatile, and the global financial crisis had added significant uncertainty to the economic outlook. 128 DEMONSTRATION AND IMPACT 2013: Launch of the O3b satellite, a transformational force for communications in many developing countries. 129 IFC: THE FIRST SIX DECADES CONSUMER LIGHTING A HIGH-IMPACT PRODUCT For more than 20 years, IFC has been working to lighting technology, yielding considerable economic support private sector delivery of environmentally and environmental benefits. By 2004, roughly half friendly lighting products—reducing greenhouse of all Polish homes were using CFLs, leading to a gas emissions by accelerating adoption of advanced reduction of 2.8 million tons of carbon dioxide technology in emerging markets and creating emissions through private investment—equiva- vibrant, competitive markets that offer consumers lent to taking nearly 600,000 cars off the road. affordable access to new eco-friendly lighting. Building on this work and based on the PELP This innovative work began in Poland, where, in model, IFC set up the $15 million, GEF-funded, 1995, IFC partnered with the Global Environment seven-country, four-continent Efficient Lighting Facility (GEF) on a $5 million pilot initiative to Initiative (ELI). Running from 1999 through 2003, lower electricity consumption. Called the Poland the initiative worked with governments, manufac- Efficient Lighting Project (PELP), the effort involved turers, distributors and utilities to reduce prices, building local consumer demand for compact flu- expand availability, and increase sales—sparking orescent lamps (CFLs), which were already being the competitive forces that drive market develop- manufactured in Poland, primarily for export. Using ment. In Peru alone, annual sales rose from 250,000 short-term manufacturer subsidies combined with to more than 5 million—sustainable improvements consumer education campaigns, PELP helped give that endured after the program. rise to a self-sustaining domestic market for efficient 130 DEMONSTRATION AND IMPACT Kenya: IFC's Lighting Africa program brings affordable solar lighting products to market, helping students study at home without relying on kerosene lamps. The same approach is now being used in Bangladesh (opposite page) and other countries. Through such experiences—and a strengthening lighting, the initiative targets African communities partnership with the lighting industry—IFC took without access to electricity. The program partners note of the potentially disruptive force of emerging with industry to provide market insights, steer technologies such as LED lighting, lithium batteries development of quality assurance frameworks for and cellular telephony. Understanding the environ- off-grid lighting devices and systems, and promote mentally sustainable development possibilities, IFC competition and consumer awareness. By 2015 then engaged with companies that were developing it had delivered access to clean, affordable, safer these potentially game-changing technologies in lighting and energy to more than 50 million people Africa, where more than 1 billion people lacked across Africa. access to electricity. Today, the program operates on a global scale as The result was Lighting Africa, a joint IFC and Lighting Global, reaching nine countries in Africa, World Bank program launched in 2007. The first Asia, and the Pacific and functioning as the hub of a private-sector-oriented effort that leverages new dynamic global industry, attracting more than $250 LED lighting technologies to build sustainable million in investment in 2015 alone and benefitting markets for safe, affordable, and modern off-grid over 100 million people to date. 131 IFC: THE FIRST SIX DECADES Myanmar, 2016 EPILOGUE CREATING OPPORTUNITY WHERE IT’S NEEDED MOST I n its first six decades, IFC provided global lead- now its partners. But IFC’s experience, expertise, and ership in seizing opportunities for private sector readiness to innovate make it a global leader. development. Now new opportunities are arising, requiring the crafting of new solutions, drawing on Throughout its history, IFC has gone after the toughest its long-standing traditions of innovation, influence, challenges and met them by creating new programs, demonstration, and impact. platforms, structures, and markets. It started with individual demonstration projects and moved toward At first, IFC focused on helping multinational compa- scalable initiatives, often integrating investment and nies set up operations in emerging markets. It also advice. worked with governments to make the local investment climate more favorable. Then as local companies Globalization and the development of the private sector grew, IFC helped them gain access to capital and have been engines of growth and poverty alleviation improve their operations. In the 1980s and 1990s, as since World War II. Now the world faces a new set of disappointment in government-driven development increasingly complex global challenges—including models increased, IFC helped to privatize state assets urbanization, aging populations, displaced people, and fund privately owned infrastructure. After the turn slowing economies, rising inequality, pollution and of the century, as the goals of global development climate change, fragility and pandemics, and the shifted toward sustainability and inclusion, the greater vulnerability of each nation to crises in an institution further broadened its scope and added ever-more interconnected world. Achieving today’s initiatives such as microfinance and reducing carbon development goals will require significant global coop- emissions. Meanwhile IFC greatly increased the flow eration, with a central role for the private sector, so that of investor capital into developing countries through countries have the financial and technical support they the Asset Management Company and syndication need to reduce poverty and boost shared prosperity. programs, while also sharpening its focus on fragile and conflict-affected states and climate change. IFC’s mandate remains just as it was in 1956: fueling, mobilizing, and catalyzing the private sector’s IFC began as a small, untested institution—one with response. The level of today’s ambition demands that a bold mandate, and full confidence in its ability to solutions be developed and resources mobilized that deliver on the mission. Today the private sector is now are commensurate with the scale of the global chal- recognized as the prime engine of economic growth, lenge. Moving ahead, IFC will continue to pioneer new essential for mobilizing and applying the world’s capital approaches to private sector development, working to create the jobs needed to reduce poverty. Other with its World Bank Group counterparts, clients, and multilateral development agencies have arisen over other partners. the years to pursue this goal, including many that are 136 CREATING OPPORTUNITY WHERE IT'S NEEDED MOST Private Sector Solutions: Supporting sustainable, inclusive development worldwide. 137 IFC: THE FIRST SIX DECADES THE FUTURE VISION The opportunities of tomorrow lie not just in con- In Colombia, IFC has invested in a $400 million tinued investment via existing approaches, but in infrastructure debt fund designed to mobilize helping create new markets. financing from local pension funds. Crowding in investment sources, this new structure enables This is IFC’s next challenge. Working with a broad the pension funds to invest in local infrastructure range of partners—other World Bank Group insti- projects while ensuring the diversification and tutions, the International Monetary Fund, local low volatility their portfolios require. This type of regulators, clients, co-investors, and others—it can instrument will be critical as Colombia embarks again help move the needle, finding innovative ways on an ambitious infrastructure program that will to steer large-scale private investment to the regions require about $24 billion in financing to upgrade and industries that need it the most. This approach its precarious network of roadways—the country’s will be especially important in infrastructure, where largest infrastructure investment program under- current investment levels fall far short of the more taken to date. than $1 trillion that the World Bank estimates is needed each year. Using new approaches like this and others—making good use of advisory services along with capital Today 1.2 billion people live without electric- markets, disruptive technologies, inclusive business ity. More than 660 million people lack access to models, and more—IFC can help unlock a new safe drinking water, while more than a third of series of private sector solutions, addressing key the world’s rural population is not served by an objectives of the global development agenda. all-weather road. Emerging market governments cannot afford to bridge their infrastructure gaps through tax revenues and aid alone. Much more private financing needs to be mobilized. This will require developing local capital markets and tapping new funding sources, including insti- tutional investors such as insurance companies, pension funds, and sovereign wealth funds. In Latin America, for example, pension funds are an essential source of domestic savings, yet invest only 1 percent of their portfolio in infrastructure. 138 CREATING OPPORTUNITY WHERE IT'S NEEDED MOST 139 IFC: THE FIRST SIX DECADES EDITORIAL AND DESIGN TEAM PHOTOGRAPHY Rob Wright All photos and images are from the collections Lisa Kopp of IFC and the World Bank Group Archives, Joseph Rebello with the exception of the following: Frances Brennan Bhattiprolu Balachandra Murti Iwan Bagus/IFC (pages 8, 113/bottom, and 132-133) Mame Annan-Brown Asian Development Bank (page 16, left) Irena Guzelova The New York Times/PARS International (pages 26, 34, and 35) Susanne Vallazza David Gill (page 44) Bianca Simogne Castro Sailendra Kahrel/IFC (page 47 and 98-99) Thuy Huong Dinh LaFargeHolcim (pages 54 and 56) PhotoShelter (page 59 and 60-61) CONSULTANTS Hikma Pharmaceuticals (page 64) John Landry Newmont Ghana Gold (pages 70-71) Ann Moline ABC News special video (pages 74 and 78) Stanley Thawley Superstock; Polish Press Agency; Warsaw Stock Exchange (page 77) Inter-American Development Bank (pages 88-89) This book is an initiative of IFC’s 60th Anniversary Committee, BP (pages 90-91/top) chaired by Gavin Wilson and co-chaired by Dimitris Tsitsiragos Ted Pollett/IFC (page 91/bottom and 92-93) and Bruce Moats. Brad Roberts/IFC (page 94) Helene Meurisse/IFC (page 95) We would like to acknowledge the extraordinary contributions FT Live (page 96) of those who created and shaped this organization in its early Vanessa Bauza/IFC (page 104) years, as well as those who subsequently developed it into the bKash (page 105) institution it is today. Their dedication to IFC’s founding vision The Cravings Group (page 108) and ongoing commitment to its mission have given us the tools NephroPlus (page 109) to create opportunity where it’s needed most. Aegea Saneamento (page 113/top) Afriflora (page 114) Olivier Girard/International Center for Forestry Research (CIFOR) (page 116) Joseph Rebello/IFC (page 117) Getty Images (page 129) Noor Ahmed Gela/IFC (page 130) Bridge International Academies (page 137/top) ARCHIVAL RESEARCH SUPPORT Shiri Alon, Tonya Ceesay and Bertha Wilson/World Bank Group Archives; Patricia R. Lee/IFC Legal Records and Official Documents Files PHOTO SCANNING Franz Mahr/World Bank Group DESIGN Design Army PRINTING Sandy Alexander 140 IFC: THE FIRST SIX DECADES