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Home  >  Fundamental analysis  >  International Finance Corporation (IFC)


International Finance Corporation (IFC)



International finance is the examination of institutions, practices, and analysis of cash flows that move from one country to another. There are several prominent distinctions between international finance and its purely domestic counterpart, but the most important one is exchange rate risk. Exchange rate risk refers to the uncertainty injected into any international financial decision that results from changes in the price of one country's currency per unit of another country's currency. Examples of other distinctions include the environment for direct foreign investment, new risks resulting from changes in the political environment, and differential taxation of assets and income.

The level of international trade is a relevant indicator of economic growth worldwide. Foreign exchange markets facilitate this trade by providing a resource where currencies from all nations can be bought and sold.

In addition to international trade, there is a second motivation for international financial activity. Many firms make long-term investments in productive assets in foreign countries. When a firm decides to build a factory in a foreign country, it has likely considered a variety of issues. For example: Where should the funds needed to build the factory be raised? What kinds of tax agreements exist between the home and foreign countries that may influence the after-tax profitability of the new venture? and many others questions.

The International Finance Corporation (IFC) is the member of the World Bank Group that promotes the growth of the private sector in less developed member countries. The IFC's principal activity is helping finance individual private enterprise projects that contribute to the economic development of the country or region where the project is located. The IFC is the World Bank Group's investment bank for developing countries. It lends directly to private companies and makes equity investments in them, without guarantees from governments, and attracts other sources of funds for private-sector projects. IFC also provides advisory services and technical assistance to governments and businesses.

In other words, International Finance Corporation (IFC) is the lender known 'round the world. IFC promotes economic development worldwide by providing loans and equity financing for private-sector investment. The IFC typically focuses on small and midsized businesses, financing projects in all types of industries, including manufacturing, infrastructure, tourism, health, education, and financial services. Established in 1956, the IFC is part of the World Bank group. Although it often acts in concert with the World Bank and shares its president, the IFC is legally and financially autonomous. It is owned by nearly 180 member countries.

The IFC generally operates independently as it is legally and financially autonomous with its own Articles of Agreement, share capital, management and staff. The IFC has 2,400 staff; 178 members; and lends in 80 countries, with 40 per cent of its investments in the financial sector. The IFC's worldwide committed portfolio as of financial year 2005 was $19.3 billion for its own account and $5.3 billion held for participants in loan syndications.

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