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IFC’s and MIGA’s Support for Private Investment in Fragile and Conflict-Affected Situations

Chapter 4 | Summary and Recommendations

IFC’s and MIGA’s Support to FCS and Its Effectiveness

IFC and MIGA have not been able to scale up their business volumes in FCS, despite the introduction of new instruments and modalities for advisory and investment support to FCS countries. The share of IFC’s and MIGA’s investment volumes in FCS has remained stagnant over the past decade. Over FY10–21, IFC’s long-term commitments in FCS have been relatively flat, averaging 5.2 percent of IFC’s total commitments and 8.6 percent of projects. MIGA’s volume of guarantees has also remained flat, averaging 9 percent of its overall guarantee volume and 17 percent of projects. Although neither institution is yet on a growth trajectory for its business in FCS, their ability to maintain the relative share of business volumes contrasts favorably with the declining flows of FDI into FCS countries over the same period.

A shortage of bankable projects that meet IFC and MIGA standards and criteria, more so than the availability of finance, is the key constraint to scaling up business in FCS. IEG’s analysis finds that the supply of bankable projects is limited by financial and nonfinancial risks (World Bank 2021b). Nonfinancial risks include those arising from weak governance, uncertainty, underdeveloped regulatory regimes, poorly functioning institutions, and market characteristics of most FCS countries. They also include risks related to E&S and governance and integrity due diligence issues.

Despite the challenging business environment and constraints in FCS, evaluated IFC projects perform almost as well as those in non-FCS, particularly infrastructure projects and larger investments in larger economies. IFC’s development outcome ratings in FCS countries have been somewhat below those in non-FCS countries (46 percent in FCS versus 53 percent in non-FCS). The performance of IFC projects was driven by well-performing infrastructure projects, large investments in large economies, a high quality of clients, and engagements with repeat clients. Although projects with repeat clients performed well, ensuring additionality in follow-on projects with established sponsors remains a challenge.

MIGA’s projects in FCS performed better than those in non-FCS countries (73 percent versus 63 percent). These results are driven by well-performing projects in the agribusiness, manufacturing, and services sectors. High outcome ratings also reflect MIGA’s work with strong clients, as foreign investors tend to be better capitalized and have a larger asset base and diversified revenue sources compared with local firms. However, MIGA’s FCS projects supported by the SIP—an instrument deemed highly relevant to MIGA’s engagement in FCS—are not routinely evaluated by IEG or MIGA.

Factors and Trade-Offs Influencing the Scale-Up of Business in FCS

The evaluation identifies seven discrete factors that have affected IFC’s and MIGA’s ability to scale up their support to FCS and that may address the limited supply of bankable projects. These are country constraints, availability and quality of clients, upstream and advisory services, cost of doing business, risk and risk management, collaboration within and outside the World Bank Group, and incentives. Although IFC and MIGA have made progress on each of these factors, increasing investment beyond the FCS economies already receiving IFC and MIGA support will involve trade-offs among the various factors, such as accepting higher costs and longer time frames to facilitate the diversification of their client bases. This could affect IFC’s and MIGA’s bottom lines. The availability of alternative financing instruments to subsidize some of the up-front costs could make this more acceptable to their sponsors and shareholders.

The following links and trade-offs among the different factors emerge from the evaluative evidence and provide insights for IFC’s and MIGA’s future engagements in FCS countries:

  • Country characteristics and constraints: Variability in country characteristics and constraints points to the need for differentiated strategies and approaches adapted to country conditions, based on diagnostic work on the key constraints and opportunities to diversify and scale up the portfolios—building on existing initiatives such as Country Private Sector Diagnostics, IFC’s country strategies, and Country Partnership Frameworks.
  • Client quality and availability: The limited number of clients that are able and willing to meet IFC’s and MIGA’s standards, combined with modest FDI flows to FCS, imply a need for IFC and MIGA to broaden their client bases to reach and build up the capacity of local and regional private investors, as well as to accept higher risks and costs and longer time periods to enable gestation of bankable projects.
  • Upstream engagements and availability of advisory services: In the absence of available international investors and project sponsors, upstream engagement and advisory services can be instrumental in identifying eligible local sponsors and building client capacity using blended finance and other instruments to facilitate deal flow in FCS countries.
  • Cost of doing business: Expanding business in FCS will require greater resources. IFC’s and MIGA’s cost of doing business is 2.5 times higher in FCS than non-FCS countries, with smaller average investment sizes and longer processing times, which are disincentives for building an FCS pipeline. The resource intensity stems from the need for increased project preparation and capacity building for clients, staff presence, and the longer time horizons required for project gestation.
  • Implications of financial and nonfinancial risks: Investing in high-risk countries involves a trade-off with IFC’s overall portfolio risk-reward balance and financial results. Such investments may require reconsidering the risk-bearing capacity in FCS at the corporate level to better align it with the objectives of increasing business volumes in these countries. Beyond the financial implications of credit risk, scaling up in FCS is constrained by nonfinancial risks arising from poor regulatory and policy environments and reputational risks related to E&S and governance and integrity due diligence issues.
  • Internal and external collaboration: Bank Group–wide collaboration and collaboration with external partners have helped address the multiple needs of countries emerging from protracted conflicts, reduce high business risk (including weaknesses in the business environment), and facilitate investments.
  • Incentives and staffing: Weak staff incentives have been a constraint to expanding IFC’s footprint and increasing its investments in FCS countries. IFC has sustained its country presence of staff working in FCS with substantial support from staff working from nearby hubs. Although recognition of staff contributions to high-impact projects in FCS has increased, this could be complemented by greater incentives for career growth for staff who have worked in or on FCS countries.

These findings indicate that scaling up in FCS would involve further recalibration of IFC’s and MIGA’s business models in FCS. Private sector development and supporting private investment in FCS remain challenging and require experimenting, piloting new approaches and instruments, and learning by doing. The evaluation concludes that changes to IFC’s and MIGA’s business models (including risk tolerance, cost structure, and institutional incentives and culture) may help them overcome the existing shortage of bankable projects in FCS countries. These changes may involve identifying new types of clients; adjusting the instrument mix to downscale and reach local or less-sophisticated clients; working with experienced clients from neighboring countries; accepting longer gestation periods for projects; and moving the engagement model toward more proactive upstream work on project development, project preparation, and sector and policy reform. In addition, new institutional arrangements and modalities such as partnerships with grassroots organizations, blended finance solutions, or trust funds could be deployed to help manage the risks and cost of doing business, address capacity-building needs, and accommodate the longer time periods required for project development and gestation.

Finally, IFC and MIGA could complement the use of corporate volume targets in FCS with targets for the number of projects or other suitable metrics to measure their contribution to inclusive growth of the private sector in FCS. Corporate volume targets, adopted by Bank Group institutions and many development finance institutions, create an incentive to prioritize large-scale projects at the expense of smaller projects in more challenging markets. Some comparator institutions have moved to complement volumetric targets with indicators such as the number of projects or broader private sector development indicators that provide incentives for working in FCS. Such incentives could also be adopted by IFC and MIGA to enhance their development contribution and project pipeline in underserviced FCS, such as small island developing states. Nonetheless, given the smaller size of projects in these states and other disadvantaged FCS, their contribution to the overall volume targets in FCS is likely to remain modest. Adjustments in performance metrics may enable IFC and MIGA to set more realistic targets for their engagements in FCS and incentivize expansion to frontier markets.


Based on these findings and conclusions, the Independent Evaluation Group makes the following recommendations to strengthen the relevance and effectiveness of IFC’s and MIGA’s support to investments and private sector development in FCS.

Recommendation 1: IFC and MIGA should continue to review their financial risk, make more explicit the implications of IFC’s portfolio approach for FCS, and enhance capabilities to address nonfinancial risks to ensure they align with achieving business growth targets and impacts in FCS. Increasing investments and guarantees in FCS countries involves trade-offs between IFC’s and MIGA’s risk tolerance and financial results as they strive to fulfill their dual mandate of development effectiveness and financial sustainability. IFC and MIGA should continue to periodically assess whether the risk frameworks, models, capital requirements, and financial implications fully support the business growth objectives and targets of the institutions in FCS. Building on experience to date, IFC should also make more explicit the risk-reward trade-offs and implications for investments in FCS in the context of its portfolio approach. The portfolio model followed by some impact investors of accepting low(er) returns in FCS markets may provide helpful lessons for IFC’s portfolio approach. Finally, IFC and MIGA should assess and, where needed, strengthen their capacity to address nonfinancial risks, as they are a key constraint to developing bankable projects in FCS.

Recommendation 2: To focus on the development of bankable projects, IFC and MIGA should further recalibrate their business models, client engagements, and instruments to continuously adapt them to the needs and circumstances of FCS and put in place mechanisms to track their effectiveness for real-time learning.  

  • To address the shortage of bankable projects, IFC will need to shift its business model more fully toward upstream project development and identify new clients as the norm in FCS. This can build on IFC’s existing upstream and advisory work, with close coordination among IFC, MIGA, and the World Bank on country diagnostic work and coordinated action to address constraints and leverage investment opportunities.
  • MIGA should continue to enhance collaboration with the World Bank and IFC on diagnostic and upstream work to fully exploit synergies with IFC’s and the World Bank’s Creating Markets activities. MIGA can also make the full use of its toolbox (including the SIP), build capacity among less-experienced clients in FCS, and explore the design of future trust funds to expand coverage in areas outside the MIGA Convention, for which there is demand from local investors.
  • To address the resource implications of scaling up in FCS, IFC and MIGA should consider enhanced partnerships with nontraditional investors and social enterprises or possible use of IDA funding to cover the upfront cost of developing the private sector and project preparation in FCS.
  • To ensure effectiveness of existing and nascent instruments and approaches to enhance the pipeline of bankable projects, as a priority, IFC and MIGA should put in place mechanisms to track implementation and effectiveness of these initiatives for real-time learning and course correction.

Recommendation 3: IFC and MIGA should identify and agree on FCS-specific targets in their corporate scorecards to focus their efforts and track progress in implementing the Bank Group FCV strategy for the private sector. The current use of key performance indicators that comingle low-income countries with IDA and FCS country groupings may dilute the focus on FCS and FCS-specific topics. Harmonizing World Bank, IFC, and MIGA definitions of FCS and using a single FCS list would be a precondition for setting targets that are clear, transparent, and comparable across the Bank Group.