Policy Note · MDB Reform Monitor · March 2026
The IFC in Fragile States: Performance, Structural Constraints, and the Limits of Scale-Up
IFC’s investment performance in fragile and conflict-affected states (FCS) stands at 11% Satisfactory for the CY2020–22 cohort — one successful outcome in nine, in the markets where development need is greatest. The IFC and the World Bank are different businesses serving different clients. They work best in sequence: the Bank builds the enabling environment, the IFC puts the private sector table in it. They should remain separate institutions. The sum of a combination is less than what each is worth standing alone. You cannot convert the World Bank Country Director from a reform advocate into a debt collector.
1. IFC’s Performance in the Markets That Matter Most
The IEG RAP series from 2020 to 2024 provides a specific and sobering baseline on IFC’s performance in fragile and conflict-affected situations — the markets where development need is greatest and where the institution has repeatedly committed to scaling up its presence.
1.1 The Pattern: Recovery Followed by Renewed Collapse in FCS
IFC Performance Trends by Cohort. Sources: IEG RAP 2022, 2023, 2024; IEG FCS Evaluation FY2010–21.
| Cohort (CY) | Overall S+% | FCS S+% | IDA/Blend S+% | Work Quality | Additionality |
|---|---|---|---|---|---|
| CY2015–17 | ~30–35% (est.) | 22% | n/a | Declining | Declining |
| CY2017–19 | ~56% (uptick) | Recovering | n/a | Improving | Improving |
| CY2019–21 | 64% S+ | 56% S+ | n/a | 60% S+ | 59% |
| CY2020–22 | 60% S+ | 11% S+ | 36% S+ | 55% S+ | 54% overall / 33% in FCS |
| CY2021–23 | Declining | Declining (key drag) | ~29% S+ (est.) | Improving slightly | Weakening in FCS/IDA |
The 11% Satisfactory figure for FCS investment projects in the CY2020–22 cohort (IEG RAP 2023) is the most important single data point in this assessment. It is not only a pandemic anomaly: it follows a period (CY2019–21) when IFC’s FCS investment performance recovered to 56% — demonstrating that better outcomes are achievable. The collapse to 11% in the next cohort reflects structural volatility in a segment where IFC’s institutional model is fundamentally ill-adapted.
1.2 Additionality: The Core IFC Promise Is Failing in FCS
IFC’s distinctive contribution — beyond financing — is additionality: the provision of knowledge, technical standards, ESG improvements, and catalytic mobilisation of other investors that would not occur without IFC involvement. In FCS markets (CY2020–22), IFC realised its anticipated additionality in only 33% of projects. The gap is widest for non-financial additionality — the dimension most critical to long-term market development:
- Knowledge and innovation additionality: 17 percentage points below anticipated levels
- ESG standards additionality: 22 percentage points below anticipated levels
- Financial mobilisation additionality: modest but more consistent
This finding matters because the argument for concessional public capital is premised on additionality: public subsidy is justified by developmental impact beyond the financial return. If IFC is realising additionality in one-third of FCS investment projects, the development case for concessional subsidy in FCS rests on a minority of deployments.
1.3 Advisory vs. Investment: A Structural Divergence
IFC advisory services showed more consistent improvement across the RAP 2020–2024 period. Development effectiveness ratings for advisory projects in FCS improved, attributed partly to shorter project durations, smaller project sizes, and greater co-location of team leaders in the field following a 2017 IEG-IFC work quality study.
This divergence between advisory and investment performance is itself a finding. The mechanisms that improve advisory delivery — shorter cycles, field presence, reduced scope, direct client engagement — are harder to apply to large investment operations in fragile markets. The optimal IFC intervention model in FCS is advisory-first, with investment following only where client quality, counterpart institutions, and market conditions have been established through earlier advisory engagement. The current model does the reverse.
2. Seven Structural Constraints to IFC Scale-Up in FCS
The 2022 IEG evaluation of IFC and MIGA support for private investment in FCS (FY2010–21) delivers a clear verdict: neither institution was able to scale up business volumes in FCS during the period despite successive strategy cycles and multiple new instruments. IFC’s long-term FCS commitments averaged 5.2% of total commitments throughout FY2010–21 with no upward trend. Seven structural factors explain why.
| Constraint | What It Means | Why Concessional Financing Cannot Fix It |
|---|---|---|
| Shortage of bankable projects | Binding constraints in FCS are non-financial — weak governance, underdeveloped regulatory frameworks, and integrity and E&S due diligence concerns | Concessional capital is principally designed to address financial risk. It cannot create governance, rule of law, or regulatory capacity. Non-financial binding constraints require upstream enabling environment work, not cheaper capital. |
| PSW failed to produce volume | Despite $2.5bn in allocated IDA18 funds, the Private Sector Window did not generate a net increase in IFC commitments in PSW-eligible countries; non-PSW IFC commitments actually fell in aggregate | Additionality of the PSW instrument itself is unproven. The substitution risk is fundamental: PSW may replace rather than supplement IFC own-account FCS activity. |
| Prohibitive cost of doing business | Operating in FCS costs 2.5× more per dollar committed ($48/$1,000 vs $19/$1,000 in non-FCS), compressing margins and deterring deal flow | Cost structure is structural, not cyclical. Cheaper capital reduces the cost of money but not the cost of operations. Unless staff incentives, field presence, and transaction cost subsidies are addressed, the deal economics do not change. |
| Negative risk-adjusted returns | IFC’s internal review (FY2011–15) found negative risk-adjusted returns across all industry groups in FCS; NPL rates at 4× non-FCS levels | Negative risk-adjusted returns mean IFC is not just failing to make money — it is destroying value in aggregate on its FCS portfolio. No amount of concessional financing resolves an adverse risk-return profile that is intrinsic to the market segment. |
| Institutional sustainability | IEG scenario analysis: scaling IFC commitments in IDA LIC and FCS markets from 6% to 15% of total would reduce annual net income by ~$90m | IFC’s financial model depends on profits from middle-income markets that cross-subsidise IDA/FCS exposure. Rapid scaling of FCS share would require either (a) a fundamental change in IFC’s financial model or (b) recognition that this is a grant-funded, not commercially-driven, activity. |
| Portfolio concentration | Just six countries (DRC, Lebanon, Nigeria, Mozambique, Myanmar, Congo) accounted for 54% of IFC’s FCS business in FY2010–21 — the most commercially accessible FCS markets | The landlocked, low-FDI, lowest-CPIA markets where development need is greatest are precisely where IFC has been least present. Scaling the six-market concentration is not the same as scaling FCS reach. |
| Client quality trap | Repeat-client projects performed at 84% S+ in FCS vs 29% for new clients; IFC only 4% of FCS investment projects led by in-country staff at commitment | Institutional bias toward established sponsors limits market development. Field presence stagnated from FY13 to FY19. Decisions are made from Washington about markets that must be understood from the ground. |
2.1 What Must Change Before Scaling
Scaling without prior structural reform will amplify the existing performance gap. Three prerequisites are necessary before FCS scaling targets are set:
- Disclose IFC development impact baselines per instrument and FCS tier. IFC’s FCS investment outcome rate stood at 11% Satisfactory (CY2020–22). Scaling targets should be conditioned on improvement from this baseline, not set in parallel with it. Annual reporting of IFC development outcome rates disaggregated by FCS country category and instrument type should be a minimum requirement.
- Resolve the PSW additionality question. Before deploying concessional capital at scale, a mandatory FCS additionality assessment should be required per replenishment cycle — confirming that the Private Sector Window is generating net increases in FCS commitments, not substituting for IFC own-account activity.
- Build the enabling environment before the investment pipeline. The binding constraints in most FCS markets are non-financial. The advisory-first model — establish regulatory frameworks, build market systems, develop client capacity, then introduce investment — has a better empirical track record than leading with investment capital.
3. IDA21 Architecture: What Changed and What Did Not
The 21st Replenishment of IDA, approved on 17 March 2025 and effective from 1 July 2025, commits up to $100 billion in total commitment authority for FY2026–28 — an 8% nominal increase over IDA20’s $93 billion.
IDA21 Allocation Structure. Source: IDA21 replenishment documents, approved March 17, 2025.
| Window / Allocation | Size | Key Features |
|---|---|---|
| Country Allocations (total) | $67.2bn | Performance-based; 58% of total replenishment |
| FCV Envelope | $8.8bn | PRA (prevention/resilience), RECA (conflict engagement), TAA (turn-around); enhanced upstream eligibility and grant flexibility for CPIA ≤2.5 |
| GROW Window (new) | $15.9bn | Replaces Regional Window; fully concessional; no PBA contribution required |
| Scale-Up Window | $10.0bn | $7.0bn non-concessional + $3.0bn concessional SML |
| Crisis Response Window | $3.7bn | Last-resort financing; $1.0bn early response facility; grant terms for red-light countries |
| Private Sector Window | $3.2bn | IFC/MIGA deployment; new public dashboard; + $0.5bn IFC Concessional Capital Window |
| IDA-GFPP (new) | $0.3bn | Project preparation grants up to $100m/year |
| TOTAL | $100bn | 8% increase on IDA20; grant element $53bn (54%) |
3.1 What IDA21 Gets Right
- FCS disaggregation of all 22 Scorecard indicators is a genuine transparency commitment. For the first time, the institution will systematically track whether FCS performance is keeping pace with overall portfolio performance.
- The Facetime Index operationalises the link between staff field presence and FCS delivery quality — addressing one of the most persistently cited structural weaknesses.
- The GFPP ($300m) creates the first dedicated funding stream for project preparation, addressing the upstream design quality problem at source.
- IFC Concessional Capital Window ($0.5bn ring-fenced on IFC balance sheet) creates institutional skin-in-the-game that the PSW previously lacked.
- RECA grant flexibility and third-party implementation permission for CPIA ≤2.5 countries is the most important operational improvement in the FCV Envelope, enabling the Somalia model (67% S+ in active conflict) to be deployed systematically.
3.2 What IDA21 Does Not Fix
Four structural gaps remain unresolved:
IDA21 contains no specific Policy Commitment for Quality at Entry in FCS, disbursement rates in FCS, or project restructuring practice in FCS — the three operational dimensions where the IEG evidence most clearly identifies failure. This creates a two-to-three year window in which FCS projects will be approved without the operational commitments the evidence already warrants.
Non-PSW IFC own-account commitments in PSW-eligible countries actually fell during IDA18–IDA20. The wholesale governance model, by reducing Board visibility into individual transactions, may further weaken the accountability mechanism intended to prevent PSW from substituting for rather than catalysing deeper IFC engagement in FCS.
Applied to only two countries across IDA19 and IDA20: South Sudan and Yemen. The cap increase to $400m per cycle is a calibration, not a redesign. Third-party implementation for zero-capacity contexts remains discretionary rather than a standard modality.
The IDA21 framework has no pre-agreed corrective mechanism triggered by Scorecard underperformance. When FCS indicators underperform — as the evidence suggests they will — there is no automatic governance response. The Scorecard is a transparency instrument, not an accountability instrument.
4. The IFC–World Bank Relationship: Different Businesses, Different Clients
A recurring institutional proposal is that the IFC and the World Bank should operate with greater integration or move toward merger. The performance evidence argues strongly against this logic.
The IFC and the World Bank serve fundamentally different clients. The sovereign government that borrows from the World Bank and the private equity fund that sits at the IFC table are not the same client. They do not speak the same language. They are not reassured by the same signals. The World Bank’s credibility with Finance Ministers depends on its neutrality — on the fact that it is not simultaneously trying to sell them a private sector deal while giving fiscal advice. The IFC’s credibility with private investors depends on its commercial judgment — on the fact that it is not being directed by sovereign lending priorities.
The sum of the combination is less than what the two institutions are worth standing alone. The World Bank loses its neutrality. The IFC loses its commercial independence. The Finance Minister cannot tell whether the Bank’s fiscal advice is genuine or shaped by the IFC’s need to close a private sector deal. The private investor cannot tell whether the IFC’s due diligence is independent or following the sovereign lending pipeline. It would be highly inappropriate to put casino tables in the World Bank atrium.
There are documented cases where this conflict has not worked. The Bank in that case was simultaneously the reform advisor, the guarantor, and, when the projects underperformed, the debt collector. The Country Director was no longer giving reform advice. He was protecting an investment and doing his best to ensure that the guarantee was not called. Those are not the same job. One case on this topic has been fully documented and sent to the World Bank and IFC for comment. It will be published here once the comments from the two institutions are received.
The IFC and the World Bank work best when they work in sequence. The Bank builds the enabling environment — the regulatory framework, the institutional capacity, the infrastructure that makes private investment viable. The IFC puts the private sector table in the room the Bank has built. That is the appropriate model.
5. Consolidated Recommendations
Disclose IFC FCS baselines before setting scaling targets
IFC’s FCS investment outcome rate stood at 11% (CY2020–22). Publish annual IFC development outcome rates disaggregated by FCS country tier and instrument type. Make further FCS scaling conditional on measurable improvement from this baseline.
Require mandatory FCS additionality assessment for the PSW
Confirm that each $bn deployed through the PSW is generating net increases in IFC FCS commitments, not substituting own-account activity. Reduced Board visibility through wholesale governance makes independent verification more, not less, important.
Adopt the advisory-first model in FCS
Establish regulatory frameworks, build market systems, develop client capacity through advisory services, then introduce investment. The current model does the reverse. Restructure FCS programme design accordingly.
Address the cost structure, not just the cost of capital
Operating costs of $48/$1,000 in FCS vs $19/$1,000 in non-FCS will not be resolved by cheaper money. Staff incentives, field presence requirements, and transaction cost subsidies must be addressed explicitly.
Introduce operational Policy Commitments on FCS delivery quality
Add commitments on Quality at Entry (minimum S+ rate), disbursement rates, and project restructuring practice for FCS operations. The evidence base already warrants these commitments.
Establish an FCS Results Gap Protocol
Define a formal governance process triggered when FCS outcome indicators fall below agreed thresholds across two consecutive Annual Meeting cycles. Management brings a corrective action plan to the Board. Converts the Scorecard from visibility to accountability.
Systematise third-party implementation for zero-capacity FCS
Convert the current discretionary permission for third-party implementation in CPIA ≤2.5 conflict states into a standard modality with provider accountability standards and explicit transition pathways. Somalia’s model (67% S+ in active conflict) is the template.
Keep the IFC and the World Bank as separate institutions
The combination of the two destroys what makes each credible. The Bank builds the room. The IFC puts the table in it. They are different businesses serving different clients. You cannot convert the World Bank Country Director from a reform advocate into a debt collector.
Annex — Full References
All direct quotations are taken verbatim from publicly available IEG and World Bank Group documents cited below. The 11% Satisfactory figure for FCS investment projects in CY2020–22 is from IEG RAP 2023 and has been cross-checked against the published source. All IDA21 architecture figures are from the March 2025 replenishment documents.
A. IEG RAP Series — Primary Performance Data
- World Bank — Independent Evaluation Group (IEG). Results and Performance of the World Bank Group 2022 (RAP 2022). Washington DC: World Bank, 2022. Covers CY2019–21 cohort. Confirms 64% overall S+, 56% FCS S+, 59% additionality. Primary source for the FCS recovery period data. Available at ieg.worldbankgroup.org.
- World Bank — Independent Evaluation Group (IEG). Results and Performance of the World Bank Group 2023 (RAP 2023). Washington DC: World Bank, 2023. Covers CY2020–22 cohort. Primary source for the 11% FCS S+ figure, 33% FCS additionality, 55% overall work quality, $48/$1,000 FCS operating cost. Available at ieg.worldbankgroup.org.
- World Bank — Independent Evaluation Group (IEG). Results and Performance of the World Bank Group 2024 (RAP 2024). Washington DC: World Bank, 2024. Covers CY2021–23 cohort. Confirms declining trajectory in FCS and IDA segments; work quality declined from 62% (CY2013–15) to 55% (CY2021–23). Available at ieg.worldbankgroup.org.
B. IEG FCS Evaluation — Structural Constraints Data
- World Bank — Independent Evaluation Group (IEG). The International Finance Corporation’s and Multilateral Investment Guarantee Agency’s Support for Private Investment in Fragile and Conflict-Affected Situations, Fiscal Years 2010–21. Washington DC: World Bank, April 2022. Primary source for: 5.2% average FCS commitment share with no upward trend; six-country 54% concentration (DRC, Lebanon, Nigeria, Mozambique, Myanmar, Congo); 84% S+ repeat clients vs 29% new clients; 4% in-country staff at commitment; $48/$1,000 operating cost vs $19/$1,000 non-FCS; negative risk-adjusted returns FY2011–15; NPL rates 4× non-FCS; IEG scenario analysis showing ~$90m net income reduction from scaling FCS share from 6% to 15%. Available at ieg.worldbankgroup.org.
- World Bank — Independent Evaluation Group (IEG). The International Finance Corporation’s Engagement in Fragile and Conflict-Affected Situations: Results and Lessons. Washington DC: World Bank, October 2019. Synthesis of IFC FCS evaluation evidence; corroborates structural constraints and identifies advisory vs investment divergence. Available at ieg.worldbankgroup.org.
C. Additionality Data — Confirmed Figures from IEG RAP 2023
- IEG RAP 2023, Chapter 3: IFC Additionality. Confirms: “In challenging environments, such as FCS, African, and IDA and blend countries, IFC realized its anticipated additionality in 33 percent, 37 percent, and 47 percent of projects, respectively.” Knowledge and innovation additionality gap in FCS: 17 percentage points. ESG standards additionality gap in FCS: 22 percentage points. Overall additionality success: 54% in CY2020–22 (down from 59% in CY2019–21). Available at ieg.worldbankgroup.org/evaluations/rap-2023.
D. PSW Additionality — Independent Analysis
- Center for Global Development (CGD). Does the IDA Private Sector Window Work? CGD Policy Note, 2021. Corroborates IEG finding that non-PSW IFC own-account commitments in PSW-eligible countries fell during IDA18–IDA20; private capital mobilisation per dollar of IFC own-account commitment was lower in PSW-supported projects than in non-PSW projects. Available at cgdev.org.
- World Bank — Independent Evaluation Group (IEG). An Early-Stage Assessment of the IDA Private Sector Window. Washington DC: World Bank, 2022. Confirms PSW failed to generate net increase in IFC FCS commitments during IDA18; $2.5bn allocated; non-PSW IFC commitments in PSW-eligible countries fell in aggregate. Available at ieg.worldbankgroup.org.
E. IDA21 Replenishment Architecture
- World Bank. IDA21: Ending Poverty on a Livable Planet — Replenishment Report. Washington DC: World Bank, approved March 17, 2025; effective July 1, 2025. Primary source for all IDA21 architecture figures: $100bn total commitment authority; $8.8bn FCV Envelope; $3.2bn PSW; $15.9bn GROW Window; $3.7bn CRW; $0.3bn GFPP; $0.5bn IFC Concessional Capital Window; 22 FCS-disaggregated Scorecard indicators; Facetime Index; SimplifIDA (25 PCs vs 1,000+ in IDA20). Available at worldbank.org.
- World Bank. IDA21 Lenses Paper — Fragility, Conflict, and Violence. Washington DC: World Bank, 2024. Primary source for RECA design changes, RECA cap increase to $400m, third-party implementation discretion for CPIA ≤2.5 countries, TAA top-up reduction from 125% to 100% of PBA. Available at worldbank.org.
F. FCV Strategy and World Bank FCS Evaluation
- World Bank Group. World Bank Group Strategy for Fragility, Conflict, and Violence 2020–2025. Washington DC: World Bank, February 2020. Primary strategy document; commits IFC to increasing FCS share to 40% of new commitments. Available at worldbank.org.
- World Bank — Independent Evaluation Group (IEG). An Evaluation of the World Bank Group Strategy for Fragility, Conflict, and Violence 2020–25. Washington DC: World Bank, 2025. Confirms FCS commitment concentration in three countries (Nigeria, Ethiopia, Ukraine) accounting for 64% of all FCS commitments in FY24; confirms IFC and MIGA did not differentiate FCS-specific targets. Available at ieg.worldbankgroup.org.
- World Bank — Independent Evaluation Group (IEG). FCV Strategy Mid-Term Review. Washington DC: World Bank, 2023. Documents persistent quality concerns in FCS operations; corroborates advisory-first recommendation. Available at ieg.worldbankgroup.org.
G. Accountability and Borrower Accountability Asymmetry
- Denizer, C., Kaufmann, D., and Kraay, A. “Good Countries or Good Projects? Macro and Micro Correlates of World Bank Project Performance.” Journal of Development Economics, Vol. 105, 2013, pp. 288–302. Establishes that country-level factors explain only approximately 20% of project outcome variation; the basis for the borrower accountability asymmetry argument in Section 3.2.
- World Bank. IDA21 Sustainable Development Finance Policy (SDFP). Washington DC: World Bank, 2025. Extends borrower accountability framework; the basis for the asymmetry critique — borrower accountability introduced without corresponding Bank staff accountability. Available at worldbank.org.
H. Nigeria Power Sector — Forthcoming
- Brar, P. How Not to Do PPPs in Africa: The Nigeria Power Sector Experience. mdbreform.com, 2026. Documents cases where the IFC financed private power projects requiring sovereign guarantees from governments simultaneously borrowing from the World Bank — creating a structural conflict in which the Bank was simultaneously reform advisor, lender, and debt collector when projects underperformed. Sent to the World Bank and IFC for comment; to be published on mdbreform.com upon receipt of institutional responses.