FCV Strategy Series · Paper 4 of 6 · MDB Reform Platform
IFC in Fragile States: 11 Percent Satisfactory
Track Record, Additionality Failures, and Seven Structural Constraints to Scale-Up
The Baseline the Strategy Must Answer
The Refreshed FCV Strategy places significant weight on IFC’s role in mobilising private capital for MSMEs, agribusiness, and productive employment in FCV settings. The IEG RAP series from 2020 to 2024 provides a specific and sobering baseline for this ambition.
IFC’s FCS investment outcome rate stood at 6–8 percent Satisfactory in the CY2020–22 cohort (RAP 2023) — reported as 11 percent in consolidated terms. This is the most important single data point in the IFC section. It is not only a pandemic anomaly. It follows a period (CY2019–21) when IFC’s FCS investment performance had recovered to 56 percent, demonstrating that better outcomes are achievable. The collapse to 11 percent in the next cohort reflects structural volatility in a segment where IFC’s institutional model is fundamentally ill-adapted. The Refreshed Strategy proposes to scale IFC’s FCS presence precisely as the outcome data reaches its nadir.
| Cohort | Overall S+% | FCS S+% | IDA/Blend S+% | Additionality |
|---|---|---|---|---|
| CY2015–17 | 30–35% (est.) | 22% | n/a | Declining |
| CY2017–19 | ~56% (uptick) | Recovering | n/a | Improving |
| CY2019–21 | 64% | 56% | 60% | 59% |
| CY2020–22 | 60% | ~11% | 36% | 33% in FCS |
| CY2021–23 | Declining | Declining (key drag) | ~29% (est.) | Weakening in FCS/IDA |
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 percent of projects. The gap is widest for non-financial additionality — the dimension most critical to long-term market development.
Seven Structural Constraints
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. Seven structural factors explain why.
| Constraint | What It Means | Why PSW/Financing Cannot Fix It |
|---|---|---|
| Shortage of bankable projects | Binding constraints are non-financial — weak governance, underdeveloped regulatory frameworks, integrity and E&S due diligence concerns | PSW addresses financial risk. It cannot create governance, rule of law, or regulatory capacity. Upstream enabling environment work is required first. |
| PSW failed to produce volume | Despite $2.5bn in allocated IDA18 funds, PSW did not generate a net increase in IFC commitments in PSW-eligible countries. Non-PSW IFC commitments in eligible countries actually fell. | Additionality of PSW itself is unproven. IDA21 restructures PSW governance but does not resolve substitution risk: 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) | Concessional capital reduces the cost of money, not the cost of operations. Staff incentives, field presence, and transaction cost subsidies must also be addressed. |
| 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 destroying value in aggregate on its FCS portfolio. No amount of replenishment financing resolves an adverse risk-return profile intrinsic to the market segment. |
| Institutional sustainability | IEG scenario analysis: scaling IFC FCS commitments 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 would require a fundamental change in IFC’s financial model or recognition that this is a grant-funded activity. |
| Portfolio concentration | Six countries (DRC, Lebanon, Nigeria, Mozambique, Myanmar, Congo) accounted for 54% of IFC’s FCS commitments FY2010–21 | True FCS diversification has not been achieved. The strategy’s ambition for broad FCS private sector engagement is not reflected in the actual portfolio distribution. |
| Advisory/investment sequencing | IFC advisory services showed more consistent improvement in FCS than investment. Advisory outcomes depend on shorter durations, smaller sizes, and greater government engagement. | The correct sequencing in FCS is advisory before investment — building the enabling environment before placing capital. The current model does the reverse in most cases. |
The PSW Exclusivity Problem
A detailed project-level analysis of the full PSW portfolio — 206 projects, $6.18 billion in commitments, 2017–2025 — reveals a structural design flaw that runs deeper than the additionality question: IFC has effective exclusivity over the deployment of a concessional public fund that should be competitively allocated.
Of the 206 PSW projects, 172 — 83.5 percent — are linked to IFC-managed facilities (the Blended Finance Facility and Local Currency Facility). There is no competitive process that determines which institution accesses funds. No external benchmark tests whether subsidy levels are necessary. IFC both originates and assesses the additionality of its own transactions. This is a structural conflict of interest built into the instrument from the start.
| PSW Facility | Projects | Share | Managed By |
|---|---|---|---|
| Blended Finance Facility (BFF) | 88 | 42.7% | IFC |
| Local Currency Facility (LCF) | 72 | 35.0% | IFC / TCX |
| Mixed facilities | 12 | 5.8% | IFC / MIGA |
| MIGA Guarantee Facility (MGF) | 34 | 16.5% | MIGA |
| IFC-linked subtotal | 172 | 83.5% | IFC-dominated |
The geographic and sectoral allocation that results from this structure does not match the strategy’s stated priorities. The five sectors with the strongest links to job creation — energy, agribusiness, health, tourism, and manufacturing — receive only 15.4 percent of PSW resources. Financial intermediaries in Central Asia receive average subsidies of 67 percent while Africa, home to the world’s most acute jobs crisis and the central focus of the FCV strategy, receives 37 percent. This is not a market outcome. It is the output of a system in which the institution managing the fund is also determining where it goes.
The reform is straightforward in principle: reverse auctions, open-access platforms, and performance-based disbursement that allows other qualified institutions — DFIs, development banks, regional MDBs — to compete for PSW resources where they can demonstrate better development outcomes or lower subsidy requirements for comparable transactions. The PSW was designed to open the private sector window in the world’s most difficult markets. As currently structured, it primarily opens that window for one institution.
Paper 2: $70 Billion Below Standard — The IDA Delivery Record 2015–2025
Paper 3: Four Root Causes — Why the Bank Keeps Underperforming
Paper 4: IFC in Fragile States — 11 Percent Satisfactory · Current
Paper 5: IDA21 — What It Gets Right and What It Doesn’t Fix
Paper 6: Eight Recommendations in Priority Order