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


The private sector can play a critical role in providing jobs and income in fragile and conflict-affected situations (FCS). The World Bank Group Strategy for Fragility, Conflict, and Violence 2020–2025 emphasizes the private sector’s importance in contributing to sustainable development in countries affected by fragility, conflict, and violence (FCV).

The International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) are both seeking to scale up their business volumes in FCS. Supporting investments in FCS has been a strategic priority for both IFC and MIGA for more than a decade.1 More recently, both institutions have adopted corporate targets for their business volume in the most challenging country groupings that include FCS. IFC has committed to delivering 40 percent of its overall long-term finance in International Development Association (IDA) and FCS countries and 15–20 percent in low-income IDA and IDA FCS countries by 2030. MIGA aims to reach a volume of 30–33 percent in IDA and FCS countries by 2023.2 Achieving these targets implies an ambitious increase in investment volumes in FCS compared with the level achieved before 2020. However, IFC and MIGA have not differentiated targets for business in FCS countries from the targets combining IDA and FCS countries, making it impossible to assess the extent to which future targets will be achieved within FCS.

FCS countries receive lower levels of private foreign direct investment (FDI). Net FDI flows to FCS have declined since 2012 and currently remain far below official development aid and remittances. Although FCS economies represent 5.8 percent of the developing world’s gross domestic product, they receive only 3.6 percent of FDI flows. This is due to heightened risks and constraints of investing in FCS compared with other developing countries.

This evaluation seeks to inform the implementation of the FCV strategy and MIGA’s and IFC’s commitments to scale up investments in FCS. It builds and expands on recent Independent Evaluation Group (IEG) evaluative work on the role of the private sector in FCS and assesses the effectiveness of IFC’s and MIGA’s support to the private sector in FCS during the fiscal years (FY)10–21. It draws out findings and lessons to help both institutions achieve their strategic objectives and assesses factors that could influence the scaling up of business volumes and development impacts in FCS.

The evaluation covers all relevant IFC and MIGA activities that directly support private investment in FCS, such as IFC investment and advisory services to private firms and MIGA guarantees. Through its seven country case studies, the evaluation also covers World Bank and IFC interventions with governments that are directly relevant to generating private investments. Finally, the report reflects background research in areas critical to the implementation of the FCV strategy, including staffing and human resources, financial and risk implications of scaling up in FCS, and a qualitative analysis of comparator institutions.

The evaluation covers all IFC and MIGA investments, advisory services, and guarantees committed or approved in an FCS country. However, the concepts used by World Bank Group institutions to define FCS are not fully consistent. IEG identified and analyzed the portfolio using the World Bank Harmonized List of Fragile and Conflict-Affected Situations due to its methodological rigor and to ensure consistency and comparability of data when assessing the three World Bank Group institutions.3 IFC and MIGA have separately adopted a practice of extending the World Bank (harmonized) FCS list by three fiscal years. Finally, both IFC and MIGA track their corporate commitments combining FCS countries and those that are IDA17 (17th Replenishment of IDA) eligible.

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

Over the evaluation period, IFC has incrementally deployed various new approaches and instruments, including some designed for FCS countries. Several initiatives, such as Creating Markets, upstream support, and country diagnostics, were introduced gradually but have not yet matured to a stage where their outcomes could be assessed. Under the IFC 3.0 strategy (IFC 2017), IFC has deployed diagnostic tools including Country Private Sector Diagnostics, IFC country strategies, and the Anticipated Impact Measurement and Monitoring framework. It has implemented new approaches, such as Creating Markets (which promotes sector reform, standardization, capacity building, and investment opportunities in key sectors) and introduced systematic upstream support (FY20) and de-risking instruments to address financial risks—Private Sector Window (PSW), guarantees, and blended resources (IFC 2016a). Since 2008, IFC has been implementing the Conflict Affected States in Africa initiative, a trust-funded program focused on FCS in Africa. The FCV strategy (World Bank 2020b) flagged several additional adjustments in IFC’s approach to FCS, including (i) a differentiated approach aiming to tailor investment and advisory services to the different needs and capacities of each type of FCS; (ii) increased upstream engagement; (iii) enhanced inclusion and conflict sensitivity; (iv) a portfolio approach; (v) enhanced World Bank Group collaboration; (vi) enhanced risk mitigation, in particular through blended finance solutions including the IDA PSW; (vii) streamlined programmatic approaches; (viii) greater collaboration with other development finance institutions; and (ix) strengthened staff presence and incentives. It is too early to assess the outcomes of many of these recent initiatives introduced under IFC 3.0 and the FCV strategy.

In FCS contexts, MIGA has deployed its political risk insurance (PRI) and only used its nonhonoring insurance product once. During the past 10 years (2010–20), MIGA’s average share of new PRI issued in FCS was greater in FCS than in non-FCS countries. The wider use of nonhonoring insurance is limited by MIGA’s sovereign credit risk requirement (BB− or higher rating) for that product. Furthermore, since FY17 MIGA has not deployed its Small Investment Program, one of its PRI programs, which is intended to provide streamlined support to small and less-complex projects.

MIGA has also adapted its instrument mix in FCS. It created a multicountry Conflict-Affected and Fragile Economies Facility in 2013 with the capacity to increase its guarantee volume in FCS (MIGA 2011) by $500 million. MIGA’s engagement in FCS is also supported by the IDA PSW through its $500 million MIGA Guarantee Facility (since FY18). In addition, the existing West Bank and Gaza Investment Guarantee Fund exceptionally allows coverage for local investment, which has met demand, indicating its usefulness as a product extension in an FCS context.

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 the FY10–21 period, 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. 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 environmental and social (E&S) and governance and integrity due diligence issues.

MIGA’s business in FCS depends largely on the demand for PRI and nonhonoring products, which is driven by the supply of foreign investments. Its business model allows little scope for creating markets or developing projects, as MIGA’s product depends on demand from investors or financiers for risk mitigation, indicating the scope for synergies with IFC and the World Bank that engage in creating markets and upstream activities.

The largest blended finance instrument that IFC and MIGA have deployed to mitigate financial risks in FCS is IDA’s PSW. The PSW is intended to mobilize private investments in underserviced sectors and markets in the poorest and most fragile IDA countries. It is designed to de-risk investments to make them more commercially viable or to limit IFC’s or MIGA’s own exposure to project risk. PSW has a robust process to determine the subsidies needed to make IFC and MIGA projects more commercially viable, emphasizing minimum concessionality.

However, the PSW has not led to an increase of business volume in PSW-eligible countries during IDA18 (18th Replenishment of IDA). PSW participation had positive effects in allowing IFC and MIGA to enter new markets or sectors. But IFC’s and MIGA’s usage of the PSW has been well below the original IDA18 allocated amounts. Most approvals occurred in the final quarter of FY20, coinciding with the Bank Group’s coronavirus (COVID-19) crisis response. Factors contributing to the limited usage of the PSW include strict eligibility criteria, limited pipeline, the longer gestation period for projects, and the start-up of PSW in IDA18. Another factor is that the PSW is designed to de-risk IFC and MIGA financial risks but not the nonfinancial risks and constraints limiting the supply of bankable projects in high-risk markets (World Bank 2021b).

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 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, with a larger asset base and diversified revenue sources compared with local firms. However, the MIGA FCS projects supported by the Small Investment Program—an instrument deemed highly relevant to MIGA’s engagement in FCS—are not routinely evaluated by IEG or MIGA.

E&S and gender objectives are important aspects of IFC’s and MIGA’s value addition with their clients due to weak public and private capacity in FCS and their link with sustainability and inclusion. E&S issues encountered in FCS countries are largely driven by the characteristics of the sector and project, rather than by issues related to FCS. Nonetheless, FCS projects were rated below non-FCS projects on E&S. The main factor affecting E&S performance is sponsor commitment and capacity, which must be carefully assessed as part of IFC’s and MIGA’s client selection, and strengthened through technical assistance. IFC’s focus on gender issues is reflected in various corporate policies and strategy documents. Expanded advisory services were important to engage a few IFC clients on gender issues, as in the Solomon Islands and Mali.

Implementing successful projects in FCS goes beyond their direct impact and demonstration effects. Among the country and project cases reviewed in depth, most projects contributed to private sector development, including evidence of increased private investment beyond that facilitated by IFC and MIGA, development of local markets, and strengthening of corporate governance.

In some cases, such private sector development effects have been observed at the sector level and beyond; in other cases, demonstration effects were limited. Long-term programmatic engagements involving a series of advisory and investment services and collaboration within the Bank Group have supported such private sector development effects. For instance, the Bank Group’s joint implementation plan for the power sector in Myanmar facilitated dialogue and decisions that enabled the three Bank Group institutions to operate and promote reform and investments. However, evaluative evidence also showed limited demonstration effects in some cases given the small size and the insular nature of projects relative to the needs of the country or sector. Overall, limited data were available on sector or country effects beyond project development outcomes, and no information was available on resilience and conflict sensitivity.

Private sector activity and investment has likely been affected by the increase in fragility and conflict during the past decade, which have been exacerbated by COVID-19. There has been an increase in violent conflict, forced displacement, and subregional fragility and conflict, and several countries have experienced recent reversals in progress to address FCS vulnerability. This increase in fragility has likely constrained cross-border investment and affected local private sector activity. COVID-19 has exacerbated these trends with likely knock-on effects on IFC’s and MIGA’s portfolio in FCS.

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 engagements and advisory services, cost of doing business, risk and risk management, collaboration within and outside the 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 and 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 countries than in 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 investment 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 support of 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, IEG 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 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 Small Investment Program), 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 up-front 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 co-mingling 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.

  1. International Finance Corporation strategies have had a focus on fragile and conflict-affected situations (FCS) countries since at least 2009, adopting a special FCS strategy in 2012, while the Multilateral Investment Guarantee Agency (MIGA) has identified conflict-affected countries as a strategic priority since 2005.
  2. MIGA’s target for fiscal years 2021–23 (FY21–23) combines FCS countries and those that are IDA17 (17th Replenishment of International Development Association) eligible.
  3. For the list of FCS countries, see appendix D and