The IFC provides loans, equity investment advice, and technical assistances to private businesses in developing countries. The IFC lends to the private sector and does not accept host government guarantees on its loans. Since its founding, IFC lending has reached more than $49 billion in its own fund and $24 billion in syndication for 3,319 companies stretching through 140 developing countries. In FY 2005, its new commitment was $19.3 in its own fund and $5.4 billion in loan syndications. It has been consistently profitable since 1956.
Lending products
The IFC provides services such as guarantees, quasi-equity, and equity financing, risk management products, and advisory activities. However loans - as a financing tool - represent 81 percent of the Corporation’s portfolio. Loans usually have the following characteristics:
- Terms amortizing with final maturities of up to 12 years;
- Currencies in major convertibles such as the U.S. dollar, Euro, Swiss Franc, or the Japanese Yen;
- Fixed or variable interest rates;
- Pricing that reflects the market conditions along with country and project risks.
A-Loans indicate loans from IFC account, and B-loans are syndicated loans from participating private banks.
The IFC sets limits on (the debt and equity project financing it provides from its own account in order to ensure participation…) its total own account debt and equity financing on projects in order to ensure participation of investors and lenders within the private sector. The IFC lends up to 25 percent of the total estimated project cost for new projects. Under special circumstances, the percentage can be up to 35 percent in small projects but not the single largest shareholder. However with expansion projects, IFC may also provide up to 50 percent of the project cost when its investment is less the 25 percent of the total capitalization of the project company.
An equity investment in a company conditions financing to not exceed 35 percent of the company’s total share capital and IFC not serve as the single largest shareholder. Three percent is the IFC maximum investment in a single obligor. Also equity with quasi-equity investments in a single obligor should stay under 3 percent while straight equity investments under 1.5 percent of the total Corporation’s net worth plus general reserves.
Investment process
The IFC accepts investment proposals directly from companies or entrepreneurs seeking to establish a new venture or expand an existing enterprise. After the initial proposal, the IFC may appraise the feasibility of the project with a project study or business plan from the company or entrepreneur.Private companies with some government ownership may also seek financing from the IFC. Although the IFC mainly focuses on developing the private sector in developing countries, many of IFC projects entail close coordination and relationships with government agencies in developing countries. The IFC investment process has six main stages: Identification and Appraisal, Board Approval, Document Negotiation, Commitment, Disbursement, and Supervision. The Vice President of Investment and Operations is responsible for the initial first four steps, but Disbursement and Supervision falls under the responsibility of the Portfolio and Risk Management Vice President.
Requirements for receiving funding
The IFC provides the following criteria for funding eligibility, as stated on IFC website on How to Apply for Financing:
- Be an IFC member from the developing country
- Be in the private sector
- Be sound technically
- Be commercial with profitability
- Be economically beneficial to the developing community
- Meets the IFC standard for social and environmental policy.
For more information: See 2005 IFC Annual Report (IFC website)