Full Form of IFC – International Finance Corporation
The full form of IFC is the International Finance Corporation. International Finance Corporation can be defined as a global financial institutionFinancial InstitutionFinancial institutions refer to those organizations which provide business services and products related to financial or monetary transactions to their clients. Some of these are banks, NBFCs, investment companies, brokerage firms, insurance companies and trust corporations. that solely focuses upon the development of the private sector in the developing economies by offering the same with necessary services pertaining to the advisory, investment, and asset managementAsset ManagementAsset management is a method of managing funds and investing in both traditional and specialized products in order to generate returns consistent with the investor's risk tolerance. and it aims at creating better livelihood and such other opportunities for people so that they can deal with poverty and have a better standard of living.
International Finance Corporation was established in the year 1956. International FinanceInternational FinanceInternational Finance is a section of Financial Economics that deals with the macroeconomic relationship & monetary transactions between 2 or more countries. It includes concepts like Exchange Rates, Interest Rates, FDI, & Balance of Payments etc. Corporation was established as a private affiliate of the WB or World Bank. IFC has its headquarters in Washington, D.C., U.S. IFC was established to infuse and advance economic development and encourage the growth of the private industry in the developing economies by strictly making an investment in commercial and profitable projects and simultaneously curbing poverty in the same.
Purpose of IFC
The purpose of International Finance Corporation are:
- In association with the private sector investors, IFC aims to fund the foundation, improvement, growth, and expansion of the private sector industries and simultaneously pave ways for the development of its member nations.
- IFC seeks to attract more and more investment opportunities, national and international private capital, as well as experienced management.
- IFC even seeks to stimulate and create favorable conditions for national and international private capital’s smooth flow into meaningful and productive investments in member nations.
The objectives of International Finance Corporation are:
- IFC boosts the flow of private capital (both national and international).
- IFC even encourages the development of private capital markets in developing and under-developed economies.
- International Finance Corporation(IFC) even encourages the private industry in developing economies by financing the private sector projects, offering guidance and technical assistance to the industries and the government, and assisting the companies of the developing economies in mobilizing their finances in the global financial marketsFinancial MarketsThe term "financial market" refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact and trade at a price determined by market forces..
- IFC also tends to act as a clearinghouse by bringing in together private capital, experienced management, and investment opportunities.
- IFC actively invests in productive private industries in association with the private sector investors and, thereby, focuses on such areas where required private capital is not flowing in due to some genuine reasons.
The five strategies of International Finance Corporation are:
- The first strategy is to strengthen its focus upon frontier marketsFrontier MarketsA frontier market refers to the economy that prevails low liquidity, poor accessibility, high risk and small market capitalization. Such a pre-emerging market is considered a developing nation with an underdeveloped capital market. (both IDA countries and non-IDA economies), and FCS or Fragile and conflict situations.
- The second strategy is to address concerns like climate change, social and environmental sustainability, etc.
- The third strategy is to encourage the private sector’s growth, including the food supply chain, health, education, and water.
- The fourth strategy is to encourage the development of the local and national financial markets with the help of institution building, use and mobilization of more and more innovative financial products, and focus on MSMEs or micro, small and medium enterprises.
- The fifth and last strategy is to build and maintain long term relationships with the clients in developing economies by taking full use of its products and services and stimulating trans-boundary growth.
How does it Work?
International Finance Corporation(IFC) considers only a few investment proposals. These investment proposals are solely selected based on their focus upon the establishment, improvement, and growth of productive privately held companies that will ultimately bring development for an under-performing economy. Agricultural, financial, industrial, and other commercial industries are eligible for International Finance Corporation funding if only their operations are found productive in character.
IFC is authorized to make funding as and however it may deem fit, excluding the investment in capital stocksCapital StocksThe capital stock is the total amount of share capital (including equity capital and preference capital) that has been issued by a company. It is a way of raising funds by the company to meet its various business goals. and equity shares. IFC does not really have a uniform interest rate policy about its investment function. In an IFC, the interest rates are to be negotiated for each case based on few relevant factors that include the level and types of risks involved, the right to participate in profits, and so on. International Finance Corporation invests only when the enterprises are found to have relevant experience and competent management.
Example of IFC
Pakistan ranks number four globally when it comes to the production of milk. Instead of such huge milk production, the demand for milk has always outweighed the same supply. Poor infrastructure, conventional and ineffective processes are majorly why the country’s dairy industry has struggled to balance out the demand and supply of milk. Its small scale dairy farmers produce almost 80 percent of the country’s milk. On account of an inefficient supply chain, the country’s overall milk industry has become inefficient.
International Finance Corporation contributed nearly $145 million to a Dutch co-operative Friesland Campina to acquire a 51 percent stake in Engro Foods, which happens to be Pakistan’s leading milk processing company. Engro Foods was now able to receive the benefits of this association and received raw-materials from Friesland Campina. This enhanced the productivity and efficiency of the small scale farmers of the country and reduced their wastes. This acquisition and association were expected to benefit 270,000 distributors and 200,000 farmers and create 1000 new job vacancies in Pakistan’s dairy industry.
International Finance Corporation offers investment, advisory as well as asset management services that further comprises of loans, trade and supply chain financeSupply Chain FinanceSupply Chain Finance, also called Reverse Factoring, is an arrangement in which the supplier gets advance payment for receivables through a financier on behalf of the buyer. It provides significant benefits for both the buyer & the supplier. , equity, blended finance, treasury client solutions, syndicated loans, client risk management services, structures as well as securitized finance, liquidity management, treasury services, venture capitalVenture CapitalVenture capital (VC) is long-term finance extended to startups with high-growth potential to help them succeed exponentially. The investors are venture capitalists who bear the excessive financial risk and provide guidance to startups to attain their objectives., etc.
International Finance Corporation offers various services in investment, advisory, and asset management too. IFC is an international financial institution that aims to develop and develop private industries in developing nations. IFC aims to create better livelihood opportunities for people so that they can rise above poverty and enjoy a better standard of living.
This has been a guide to the Full Form of IFC and its definition. Here we discuss how does IFC works, its strategies, objectives, purpose, along with an example, and services. You may refer to the following articles to learn more about finance –