About International Financial Institutions

• What is an International Financial Institution?
• What is The World Bank?
• What are the social and environmental policies of international financial institutions?

What Are IFIs?

International Financial Institutions (IFIs) include the World Bank Group [link to World Bank page], the regional development banks, and the International Monetary Fund (IMF). They are the largest source of development finance in the world, typically lending between US$30-$40 billion to low and middle-income countries each year.

The IFIs, and particularly the World Bank, are a primary source of development knowledge, publishing research that frames the debate on development issues. Other donor institutions often take their lead from the World Bank and the IMF, thus amplifying the impact of those institutions’ lending approaches and decisions.

IFI loans to finance investment projects and policy reforms in developing countries are intended to reduce poverty and encourage economic development. However, ill-conceived IFI loans have often caused widespread environmental and social damage including irreversible impacts on natural habitats, displaced communities, and indigenous peoples.

IFI activities are often carried out without the informed participation of affected people, non-governmental organizations (NGOs), and--in many cases--even the legislatures of the Banks’ borrowing countries. Moreover, despite some progress the IFIs still do not release comprehensive information in a timely manner during project design and implementation. Finally, as publicly financed institutions, the IFIs should be held accountable for the consequences of the funds they loan to developing countries.

What Is The World Bank Group?

The World Bank is a public international financial institution created at the end of World War II whose mission is to provide loans and credits to developing countries for projects that alleviate poverty and promote social and economic development. The Bank’s lending to governments is done through the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA).

IBRD loans are made with favorable interest rates and rather long repayment schedules. IDA credits are extended to the poorest of the poor countries (defined largely in terms of per capita income) at no interest, with very relaxed loan repayment schedules. The IBRD and IDA also provide loans and guarantees in support of private sector projects. However, the majority of Bank financing for private sector operations is done through the International Finance Corporation (IFC) and the Multilateral International Guarantee Agency (MIGA).

Thus, the World Bank Group consists of IBRD, IDA, IFC and MIGA. In general IBRD and IDA make loans for public sector projects, and IFC and MIGA promote private sector investment. IBRD and IDA share the same staff, and must meet the World Bank’s policies and procedures. The IFC and MIGA have adopted their own policies and procedures.   IBRD and IDA are subject to the jurisdiction of the Inspection Panel. IFC and MIGA are subject to the jurisdiction of the Compliance Advisor/Ombudsman (CAO).   

The World Bank Group is owned and governed by national governments, which become members by contributing to its capital stock. To join IBRD, countries must first be members of the International Monetary Fund (IMF). The amount of shares and voting power each member is allocated reflects its quota in the IMF. There are 181 member governments of IBRD and 160 members of IDA.

These countries are represented by a Board of Executive Directors, which has 24 members. Generally, voting power is determined by shares, so the more economically powerful countries control a greater percentage of the vote.   The Board must approve all projects proposed by Bank Management for financing by the Bank.  Currently, the Board is not required to approve subprojects funded by Financial Intermediaries.   The President of the Bank is appointed by the Board, and also serves as Chairman of the Board.

The World Bank Group is a multilateral development bank that provides loans and credits to developing countries to stimulate social and economic development. Although the Bank's mandate is poverty alleviation, it often provides financial support to projects that have significant adverse social and environmental impacts.

Social and Environmental Policies of IFIs

Although the mandates of most of the international financial institutions are focused on poverty alleviation, these institutions often provide financial support to projects that have significant social and environmental impacts.   Bank-financed projects can involve significant social and environmental costs, such as displacement of local communities, threats to indigenous peoples, and the destruction or degradation of the environment. In response to civil society and donor country pressure, these banks eventually established a series of policies and procedures that are intended to offset some of the environmental and social risks.

These can be viewed at the websites of the banks.

In addition, Accountability Mechanisms at the International Financial Institutions provide forums for locally affected people to request investigations into the activities of these institutions.