Saturday, August 22, 2009

International Finance Corporation and its Objectives

The International Finance Corporation (I.F.C) is an affiliated institution of World Bank. It was established on July 20, 1956 with the object of assisting private enterprises in developing countries by providing them with risk capital. The World Bank grant loans only to member governments or private enterprises with the guarantee of member government concerned. Again the World Bank provides only loan to private enterprises. Infact the development of private enterprises is held up for lack of adequate risk capital. Hence there was an urgent need for some international finance institution which would be willing to provide risk capital to the private industrial undertaking in developing countries. The I.F.C was set up to meet the participation requirement of private industrial undertakings.
The main objectives of the I.F.C is to accelerate the pace of economic development of the member countries in the under developed areas of the world in these ways.
(i) By investing in private productive enterprises in association with private investors and without any government guarantee of repayment.
(ii) By bringing together investment opportunities, private capital, both foreign and domestic and experienced management.
(iii) By stimulating productive investment of private capital, both foreign and domestic, in the developing countries for productive purposes.
As already pointed out that the I.F.C is an affiliate of the World Bank. Its membership is separate from that of the World Bank. But it is only the members of the World Bank who can become members of the I.F.C. It is not essential that all the members of the World Bank should also be the members of the I.F.C, is optional for the members of the World Bank. Total membership of the I.F.C at present is 161.
All the powers of the I.F.C have been vested in the Board of Governors. There is one Governor from ach member country nominated by government of that country. The Board of Governors normally meets once a year to chalkout the general policy of the corporation. The general business of the I.F.C is carried on by the Board of Directors which meets at least once a month. There are 21 Executive Directors who constitute the Board of Directors of the corporation. The President of the World Bank is ex-officio Chairman of the Board of the Directors of I.F.C. Subject to this over all supervision, the day-to-day routine working of the corporation is conducted by the Executive Vice-President.
The Corporation was started in July 1956 with an authorized capital of 100 million dollars. The capital has been increased from time to time to meet the increasing requirements of the corporation. The Board of Directors has decided to double the authorized capital of I.F.C to 1,300 million dollars. The corporation has also been borrowing funds from the World Bank to supplement its financial resources.
While extending financial assistance to enterprises the Corporation keeps following points in view.
1. The borrowing enterprises should be expected to make profits in course of time. Infact profitability is an essential criterion for loans to be made by the I.F.C.
2. The borrowing enterprises should be such as to make a definite contribution to the economic development of the country in which it is located.
3. The corporation is prevented by its Charter to invest more than 22 million dollars in any single venture.
4. The corporation can make investment in a private enterprises only if more than 50 percent of the capital is forth from that enterprise itself.
5. So far as the equity is concerned the Corporation cannot provide more than 25 percent of the aggregate capital of the borrowing enterprise.