The IBRD loans are available only to member country governments or with the guarantee of member-country governments. Further IBRD can only make a loan but it cannot participate in the quality of the project financed. IFC was established in 1956 with the specific purpose of financing private enterprises. It is an affiliate of IBRD. The Board of Governors of the IBRD also constitute the Board of Governors of the IFC. But it is a separate entity with funds kept separate from those of IBRD.
Functions of International Finance Corporation
The purpose of IFC is to further the economic development by encouraging growth of private enterprise in member countries particularly in less-developed areas, thus supplementing the activities of the IBRD The IFC, therefore,
(i) invests in private enterprises in member countries in association with private investors and without government guarantee, in case where sufficient private capital is not available on reasonable terms;
(ii) seeks to bring together investment opportunities, private capital of both foreign and domestic origin, and experienced management, and
(iii) stimulates conditions conducive to the flow of private capital, domestic and foreign, into productive investments in member-countries.
The IFC makes advances in the form of long-term loans or invests in equity shares in a wide variety of productive private enterprises in developing countries. It particularly encourages joint ventures between developed and developing countries, the technical skill available with the former combining with the resources available with the latter. The project which IFC proposes to assist should be an economically viable unit and beneficial to the economy of the member-country.
Normally the financial assistance from the IFC for a unit would not be less than $ 1 million and not more than $ 20 million. Further IFC’s investment normally does not exceed 50% of the total investment of the enterprise. In case of its investment by equity contribution, it does not exceed 25% of the share capital. The interest charged on advances varies depending upon proposal and stature of the borrower.
Resources of International Finance Corporation
The resources of IFC consist of capital contributed by its members. It can borrow from the World Bank for the purpose of lending.
Evaluation of International Finance Corporation
The IFC has a slow beginning and much of its assistance was concentrated in Latin and Central American countries. But in recent years it has diversified its area of operations and many developing countries stand benefited. India has also received substantial assistance from the IFC.