The International Finance Corporation (IFC) has two very important missions when investing in developing countries: development and poverty reduction. These missions present unique opportunities for the IFC and its counterparties to make significant development impacts and grow in previously untapped markets, while mitigating integrity risks through close collaboration.
Faisal Siddiqui, the IFC’s Deputy Chief Compliance Officer, and Lachlan Jackson, the IFC’s Global Lead for Equity Investments, recently discussed with us about how borrowers, sponsors, and multilateral lenders like the IFC can promote integrity in development finance.
The IFC, the World Bank Group’s (WBG’s) private sector lending arm, provides financing for projects that seek to reduce poverty and foster economic development in developing countries. The IFC provides financing to private sector entities through project finance, corporate finance, equity investments, private equity funds, bonds, and trade finance. Given its development mandate, the IFC necessarily operates in riskier markets than the typical commercial investor. It often weighs the risks associated with a project against the potential to generate a significant development impact.
Through its integrity due diligence process, the IFC examines different types of integrity risk, such as corruption, fraud, tax evasion, money laundering, lack of transparency, undue political influence, and other regulatory risks. It also seeks to identify the ultimate beneficial owners of its potential counterparties that have a 5 percent or more stake in the investment, a percentage that is considerably lower than the typical 20-25 percent industry standard. In this process, the IFC leverages the local knowledge of its staff in over 130 offices across the globe, along with the expertise of industry specialists.
