Results and Performance of the World Bank Group 2024

Chapter 3 | International Finance Corporation

Highlights

In the medium term, the development outcomes of International Finance Corporation (IFC) investment projects improved. In the long term, however, they declined slightly. Investment project ratings in Latin America and the Caribbean and in challenging contexts also declined over the long term. Notably, the development outcomes of projects in countries classified as fragile and conflict-affected situations and International Development Association and blend countries declined from 50 percent rated mostly successful or better to 18 percent mostly successful or better, whereas the share of projects grew from 17 percent to 30 percent.

IFC’s front-end work quality is a strong determinant of development outcomes in investment projects, whether it is through client quality, market analysis or assumptions, financial models, or project costs.

In the medium term, the development effectiveness of IFC advisory services projects improved. In the long term, however, it declined significantly. IFC advisory services have been delivering fewer projects and more low-effectiveness projects in International Development Association and blend countries over the long term. South Asia contributed more than any other region to the decline in IFC advisory services.

Low work quality contributes to weak development effectiveness. In FY21–23, 59 percent of IFC advisory services projects had a work quality rating of satisfactory or better. Only 9 percent of IFC advisory services projects had low work quality and high development effectiveness. In calendar years 2021–23, 55 percent of IFC investment projects were rated satisfactory or better on work quality.

COVID-19 has affected the development effectiveness of IFC advisory services projects and some IFC investment projects in the Financial Institutions Group. COVID-19 was the most important factor in IFC advisory services projects where work quality was strong and development effectiveness was weak. It also affected 19 percent of IFC investment projects but was prevalent only in the Financial Institutions Group.

Investment Projects

The RAP’s main source of evidence for IFC investment projects is a random sample that IEG evaluates and validates every year. IEG draws a random stratified representative sample (40 percent) annually from among IFC investment projects that were approved by the Board of Executive Directors five years earlier and that reached early operating maturity (so that sufficient information is available for the evaluation). During the calendar year, IFC investment staff self-evaluate all active IFC investment projects in the sample, and IEG independently validates them. IEG evaluates closed projects in the sample in lieu of IFC self-evaluations. In this section, when we refer to projects “evaluated and validated by IEG,” we mean this sample. “IFC-wide” means across IFC investment projects as a whole.

Source: Independent Evaluation Group.

Note: IFC = International Finance Corporation.

IFC investment projects’ performance is assessed on four dimensions: development outcome, IFC additionality, IFC investment outcome, and IFC work quality. Figure 3.1 shows these dimensions and their respective indicators. The development outcome dimension is particularly important in this section. It synthesizes a project’s performance across four indicators: project business performance, economic sustainability, environmental and social effects, and private sector development. It is rated on a six-point scale: highly successful, successful, mostly successful, mostly unsuccessful, unsuccessful, and highly unsuccessful.

Trends

The development outcomes of IFC investment projects improved over the medium term but slightly declined over the long term. This subsection briefly touches on the IFC-wide improvements in development outcomes over the medium term but focuses on the long-term trend because (i) the organization can learn more from what did not work than from what worked, (ii) long-term trends encompass organizational changes and strategies that take effect over time, (iii) long-term trends capture a greater number of unique observations than shorter-term trends, and (iv) most of the lessons from the past have been reoccurring and remain crucial for IFC. We show that the development outcomes of some subgroups (Europe and South Asia) improved over the long term. However, ratings in Latin America and the Caribbean and in challenging contexts—IDA and blend countries, particularly FCS countries—declined over the long term. In addition, Africa’s share of the active portfolio has increased more than any other subgroup. This shift could negatively affect IFC’s overall development outcomes in the future, given Africa’s declining development outcomes over the long term.

The development outcomes of IFC investment projects improved by 10 percentage points over the medium term but declined by 2 percentage points over the long term. The development outcomes of IFC investment projects improved over the medium term from 41 percent rated mostly successful or better (calendar year [CY]16–18) to 51 percent (CY21–23; figure 3.2).1 The share of successful projects increased by 8 percentage points over the medium term. However, the development outcomes declined over the long term from 53 percent rated mostly successful or better (CY13–15) to 51 percent (CY21–23). The increase of 4 percentage points in the share of successful projects over the long term was offset by a decline of 6 percentage points in the share of highly successful and mostly successful projects. In the remainder of this section, we analyze the development outcomes in five subgroups, two of which—Europe and South Asia—contributed positively to overall IFC development outcomes. The other three subgroups—Latin America and the Caribbean, IDA and blend, and IDA and blend projects in FCS—contributed negatively to overall IFC development outcomes.

A stacked column chart showing the share of IFC investment projects rated on development outcome on a six-point scale, ranging from highly unsuccessful to highly successful, from CY13-15 to CY21-23. A line in the chart shows the share of projects rated mostly successful or better.

Source: Independent Evaluation Group, Expanded Project Supervision Report database.

Note: Trend line shows mostly successful or better. CY = calendar year; XPSR = Expanded Project Supervision Report.

The development outcomes of Europe and South Asia improved over the long term; moreover, South Asia was the biggest positive contributor to development outcomes among the regions. The development outcomes of Europe improved over the long term from 38 percent of projects rated mostly successful or better in CY13–15 to 87 percent in CY21–23 (figure 3.3). However, its share of projects evaluated and validated by IEG declined from 18 percent to 7 percent over the long term (figure 3.4). Among the regions, South Asia was the biggest positive contributor to development outcomes over the long term due to increases in both ratings (from 58 percent to 69 percent) and share of projects (from 11 percent to 14 percent) evaluated and validated by IEG.2

A column chart showing the share of IFC investment projects rated mostly successful or better in the long-term period (CY13-15) and current period (CY21-23) for the six IFC regions. A line in the chart shows the IFC average for each period.

Source: Independent Evaluation Group, Expanded Project Supervision Report database.

Note: AFR = Africa; CAT = Central Asia and Türkiye; CY = calendar year; EAP = East Asia and the Pacific; EUR = Europe; IFC = International Finance Corporation; LAC = Latin America and the Caribbean; ME = Middle East; MS+ = mostly successful or better; SA = South Asia.

A stacked column chart showing the share of IFC investment projects evaluated and validated by the Independent Evaluation Group for each region in CY13-15 and CY21-23.

Source: Independent Evaluation Group, Expanded Project Supervision Report database.

Note: AFR = Africa; CAT = Central Asia and Türkiye; EAP = East Asia and the Pacific; EUR = Europe; LAC = Latin America and the Caribbean; ME = Middle East; SA = South Asia; WLD = World (multiregional).

Projects in Latin America and the Caribbean contributed to the long-term decline in IFC-wide development outcomes. Latin America and the Caribbean is one of the largest regions: it represents 25 percent of projects evaluated and validated by IEG in CY13–23. However, the development outcomes of the region declined from 60 percent of projects rated mostly successful or better to 47 percent over the long term. As a result of its large share of IFC-wide projects and the decline in its ratings, the region contributed more than any other to the decline in IFC-wide development outcomes (figures 3.3 and 3.4). This shift was mainly because IFC work quality in Latin America and the Caribbean, particularly preparation or front-end work (for example, screening, appraisal, and structuring), was the weakest among the regions over the long term. For example, according to self-evaluations and IEG validations, in some cases IFC missed or underestimated key risks such as client management quality and macro and market risk. Even if relevant risks were identified, adequate mitigation measures were not designed. Continued contraction of major economies in Latin America and the Caribbean due to currency depreciation and increasing inflation, among other factors, also contributed to the decline in development outcomes in the region.

Projects in IDA and blend countries contributed to the long-term decline in IFC-wide development outcomes. The development outcomes of IDA and blend projects declined from 54 percent of projects rated mostly successful or better to 46 percent over the long term. The share of IDA and blend projects in IFC evaluated and validated by IEG also declined between CY13–15 (35 percent) and CY21–23 (27 percent), mainly because of India’s graduation from IDA in FY14. Moreover, development outcomes of IDA and blend projects in recent years (CY21–23) are much weaker (46 percent rated mostly successful or better) than non-IDA projects (57 percent). The weak development outcomes in IDA and blend countries are especially striking because IDA is a strategic priority for IFC based on the IFC 3.0 strategy (2017) and the capital increase package (2018).

The long-term decline in development outcomes of IDA and blend projects is also partly attributable to a decline in the development outcomes of those in FCS contexts. The share of FCS projects in the overall IFC investment active portfolio has remained stable (at 11 percent) between FY21 and FY23 (as of April 2024); however, the number of projects in FCS has been increasing since FY21. The share of FCS in IDA and blend projects3 in IFC evaluated and validated by IEG increased between CY13–15 (17 percent) and CY21–23 (30 percent). The development outcomes of FCS projects in IDA and blend countries declined significantly, from 50 percent rated mostly successful or better to 18 percent over the long term. In fact, sensitivity analysis showed that if the development outcome ratings of FCS projects were not considered, then those of IDA and blend would have increased by 2 percentage points rather than declining by 9 percentage points. IFC work quality rating for FCS in IDA and blend projects increased from 57 percent rated satisfactory or better to 59 percent over the same period. Economic issues were the most frequent factor linked to the performance of FCS in IDA and blend projects. Other factors (for example, asset quality, civil unrest, business risk, and client quality) also contributed to the overall decline in development outcomes of FCS in IDA and blend projects.

Looking forward, given its increasing share in the active portfolio, Africa’s long-term development outcomes’ decline may negatively affect IFC’s overall development outcomes. An analysis of the active portfolio found that Africa is the only subgroup whose share increased by more than 5 percentage points—from 21 percent in FY21 to 29 percent in FY24 (as of May 2024). Its development outcomes improved from 35 percent rated mostly successful or better to 43 percent in the medium term, contributing positively to the IFC-wide improvement in development outcomes over that period. However, Africa’s development outcomes declined from 51 percent rated mostly successful or better to 43 percent over the long term. Moreover, its recent development outcomes (43 percent rated mostly successful or better) are the weakest among the regions after the Middle East (40 percent). Given Africa’s decline in ratings over the long term, the increase of its share of the active portfolio may contribute to a future decline in the overall IFC development outcomes. This shift is expected as projects have more complexities, particularly in the challenging context of IDA and blend countries in Africa.

Challenges

For IFC, challenges are prevalent factors that are usually negatively linked to development outcomes and are outside or only indirectly within the institution’s influence. A factor can have either a positive or negative influence on development outcomes, but a challenge usually has a negative influence on development outcomes. Challenges may be linked to development outcomes either IFC-wide or for subgroups of interest. The subgroups of interest, which were discussed under the trend analysis, are Latin America and the Caribbean, IDA and blend, and IDA and blend projects in FCS.

The most prevalent challenges are business risk, asset quality, economic issues, and civil unrest. We conducted a deep dive of 256 IFC investment projects evaluated and validated by IEG (CY20–23), using the RAP 2023 taxonomy to identify the top factors linked to development outcomes (figure 3.5). The most prevalent challenges are discussed in more detail in this section.

A stacked bar chart showing the most prevalent factors linked to development outcomes throughout the International Finance Corporation and by subgroups. Each factor can have a positive or negative influence in project performance. Negative influence means the identified factor constrained the project performance, while positive influence means the identified factor aided the project performance. A line showing the net effect of influence, which is the sum of positive and negative influence.

Source: Independent Evaluation Group.

Note: The order of factors within subgroups follows the IFC-wide order. FCS = fragile and conflict-affected situations; IDA = International Development Association; IFC = International Finance Corporation; LAC = Latin America and the Caribbean; negative influence = the identified factor constrained the project performance; net effect = sum of positive influence and negative influence; positive influence = the identified factor aided the project performance.

Business risk is one of the most prevalent challenges. Business risk refers to risks related to a business model, cyclical business, or the operating environment. Business risk usually has a negative influence on IFC investment development outcomes, and it occurred in 25 percent of the projects reviewed. It appears across all the three subgroups. For example, a specialty fertilizer producer in Asia was expected to transform fertilizers. Its business model was built on a weak foundation because the client did not fully grasp the trends in fertilizer use in the country and based its strategy on overoptimistic assumptions. Consequently, the project activities were not fully completed given the limited market interest from local partners, mostly resulting from price competition with state-owned enterprises. In addition, because of both a substantial downscaling of the project and the adverse effects of COVID-19, the financial and profitability results were substantially below the projections in the Board paper. IFC has indirect influence over business risk through client quality, as discussed in the Levers section in this chapter.

Asset quality is prevalent only in FCS and is mainly applicable to financial institutions. Low asset quality, such as a rise in the nonperforming loans of a client company, always has a negative influence on IFC investment development outcomes. This challenge occurred in 25 percent of IDA and blend projects in FCS that were reviewed. For example, an IFC client’s nonperforming loans increased because of the deteriorating performance in a sector that was a key driver of growth for the country. Performance in this sector dropped because of the liquidation of one of the largest traders, which had systemic exposure to all top-tier banks in the country. This led to contagion across the banking sector. Ultimately, it significantly increased the nonperforming loans of the IFC client. As a result, the client did not achieve its target of increasing its small and medium enterprise loan portfolio.

Economic issues are the third most prevalent challenge IFC-wide. Economic issues are defined as risks related to the macroeconomic environment, inflation, monetary policy, or austerity measures. This factor almost always has a negative influence on IFC investment development outcomes. Economic issues occurred in 24 percent of projects reviewed. For example, an IFC project in Africa intended to allow the client to expand its health-care services. However, the country’s economy was heavily dependent on oil, and there was a prolonged drop in oil prices. A significant proportion of patients were government employees, and a contraction in public spending on health directly affected the hospital’s results through reduced revenues and financial margins. IFC has no influence over economic issues because they are exogenous; however, IFC can improve its projections (for example, production, sales, and revenues) and scenario analysis by considering macroeconomic risks in combination with project risks during its front-end work. (Considering macroeconomic factors during IFC’s front-end work can also help mitigate business risk, as discussed in the Levers section.)

Civil unrest was a prevalent challenge only in IDA and blend projects in FCS. This factor almost always has a negative influence on IFC investment development outcomes. Civil unrest occurred in 21 percent of IDA and blend projects in FCS. For example, an IFC client was affected by the challenging macroeconomic situation created by the double impact of civil unrest and COVID-19. Consequently, the local currency depreciated by about one-third, with inflation soaring. As a result of the macroeconomic downturn, the outstanding loans declined significantly. IFC has no influence over civil unrest.

Levers

Levers are factors that are within IFC’s influence and are positively linked to development outcomes IFC-wide or within subgroups of interest. This section focuses on how IFC can use levers to influence development outcomes. In particular, we argue that IFC can influence client quality, IFC work quality, IFC additionality, and outcome indicator tracking to improve development outcomes.

Client Quality

Client quality is a powerful lever. In this subsection, we show that selecting clients with proven business models, good financial standing, strong risk management frameworks, and flexible business strategies can mitigate business risk and help clients, particularly financial institutions, withstand epidemics like COVID-19. However, selecting high-quality clients may not be feasible in all contexts. Therefore, in challenging contexts where selecting high-quality clients may not be feasible, IFC can influence client quality by providing support for capacity building. In sum, client selection and complementary capacity building can help influence development outcomes.

IFC can influence development outcomes by selecting high-quality clients. Client quality includes the ability, technical expertise, or track record of the IFC client or its sponsor. It refers to the quality of the management team and their skills, contractor competency, familiarity, and acumen. This factor occurred in 41 percent of projects reviewed. It usually has a positive influence on IFC investment development outcomes, except for Africa and FCS projects. This is an important factor because client quality gives IFC indirect influence over challenges (such as business risk) that would otherwise be outside of its influence. IFC can influence this factor by selecting clients with firm commitments, sizable companies, proven business models, strong management skills, and experience in the sector. For example, for an education project, IFC selected one of the largest private distance learning providers in Latin America and the Caribbean. The client’s size and business model stand out in this example. The client adapted to the market by canceling the unused portion of its loans during a substantial downturn, then asked for financial support once the market improved. The affordable quality education provided by the client increased substantially. This improvement shows that IFC’s selection of a high-quality client contributed to development outcomes, despite an external shock.

In challenging contexts where it may not be feasible for IFC to select high-quality clients, IFC can influence client quality by providing support for capacity building. In challenging contexts, such as Africa and IDA and blend projects in FCS, there may not be a robust pipeline of bankable projects and experienced clients with the capacity to successfully implement the projects. Nevertheless, IFC should be aware of client limitations and can build a client’s capacity by providing nonfinancial additionalities, such as technical assistance through advisory services during supervision. For example, an IFC investment project in an FCS country benefited from client-facing advisory services before and during the investment period. The advisory services helped build staff capacity, develop new microfinance products, and train the client on responsible finance. The project introduced practices, systems, policies, and institutional capacity building intended to help the client achieve commercial and environmental sustainability. The institution building, including improvements to risk management and corporate governance, allowed the client to grow its microlending portfolio sustainably.

IFC can influence business risk indirectly by selecting clients with proven business models. IFC has an indirect influence over business risk through its role in selecting clients with high client quality. For example, an agribusiness project in an FCS country intended to build storage facilities and provide preharvest financing for purchase of fertilizers, among other inputs. The prefinancing was based on a model that had been successful in a non-FCS country. However, in this case, the farmers did not pay back preharvest credits, and the business model was untested locally and unsustainable. Ultimately, the project achieved none of its development targets. This example illustrates the point that it is important for IFC to select clients with proven business models (which are tested locally and can adapt to local conditions when replicated from another country) to reduce business risk.

In addition to selecting clients with proven business models, IFC can also influence business risk by paying attention to combinations of market developments and economic factors. When doing risk assessment, IFC cannot narrowly focus on the client; it must also focus on combinations of broader factors related to market developments in the sector and the country’s macroeconomic challenges. For example, IFC invested in the expansion of an animal feed and farming company in East Asia. IFC was aware of a potential macroeconomic factor (spreading animal disease) and a market factor (cost competition among the client’s peers) that could have contributed to business risk. However, the client’s innovative vertical farming technology reduced costs compared with traditional horizontal farming. The reduced costs enabled the client to compete with peers effectively despite the additional market pressures created by reduced consumption during the spread of an animal disease.

Financial institutions with strong risk management and flexible business strategies can better withstand epidemics like COVID-19. COVID-19 was linked to development outcomes in the IEG evaluations and validations of 19 percent of projects IFC-wide, particularly projects in the Financial Institutions Group. The approaches that worked for mitigating the COVID-19 factor were (i) a strong risk management policy that allowed maintaining good credit quality and positive financial results, (ii) sound credit underwriting and a strong business strategy that enabled the client to withstand the pandemic’s effects, and (iii) a flexible strategy to stabilize the client’s financial position in reaction to the pandemic. However, the consequences of the pandemic detracted from client success, including through drops in business volumes, banks being forced to curtail their small and medium enterprise businesses, and clients downsized. The Financial Institutions Group can help mitigate these negative effects of the COVID-19 factor by selecting clients that have strong risk management and flexible business strategies.

Work Quality and Additionality

Enhancing front-end work quality and achieving nonfinancial additionality, in addition to providing financing, are important for improving development outcomes. In this subsection, we establish that the top three front-end work quality factors that could contribute to better development outcomes are (i) market assessment; (ii) client quality; and (iii) assumptions, financial models, and project costs.4 We also suggest that spending sufficient time on these front-end factors may be particularly important for challenging and complex projects.5 Finally, given the strong relationship between additionality and development outcomes, it is important for IFC to achieve nonfinancial additionality.

Improving front-end work quality can help improve development outcomes. The work quality of IFC investment projects declined from 62 percent rated satisfactory or better in CY13–15 to 55 percent in CY21–23. There is a strong relationship between work quality and development outcomes in projects evaluated and validated by IEG in CY21–23. There is an alignment between work quality and development outcomes in 77 percent of these projects (high work quality and high development outcomes or low work quality and low development outcomes). While 36 percent of the projects had low work quality and low development outcomes, only 9 percent of projects with low work quality delivered high development outcomes. IEG conducted a desk-based review of a universe of 19 projects whose work quality was rated unsatisfactory or whose development outcomes were rated highly unsuccessful in CY21–23 (with a cutoff date of December 31, 2023). The aim was to identify the top IFC work quality factors (figure 3.6) that, if addressed, could contribute to better development outcomes. The top three factors are as follows:

Market assessment. Fifteen out of 19 projects reviewed had shortfalls in work quality related to market assessments. For example, product pricing on an internet platform was not market tested, leading to overestimating demand and profitability.
Client quality. Ten out of 19 projects reviewed had work quality issues related to client quality. For example, clients lacked market entry and country experience in six large target markets in Asia. They were unable to enter these markets, and IFC’s investment was written off.
Assumptions, financial models, and project costs. Nine out of 19 projects reviewed had work quality issues related to assumptions, financial models, and project costs. For example, assumptions were not based on feasibility studies or market assessments.

A bar chart showing the top 10 work quality factors for IFC investment projects. The net effect is the sum of positive and negative influence on work quality. Negative influence means the identified factor constrained work quality, while positive influence means the identified factor aided work quality.

Source: Independent Evaluation Group.

Note: DFI = development finance institution; negative = the identified factor constrained work quality; net effect = sum of positive and negative; positive = the identified factor aided work quality.*This item refers to collaboration or coordination between advisory services and investment projects.

All these factors fall under screening, appraisal, and structuring (also known as front-end work), which is one of the two components of IFC work quality (the other being supervision and administration). There is a strong relationship between front-end work quality and development outcomes (figure 3.7). In summary, IFC could focus more on front-end work quality processes related to market assessments; client quality; and assumptions, financial models, and project costs. These factors are all within IFC’s influence, and efforts to improve them might contribute to better development outcomes.

A table showing the two-by-two matrix of development outcomes (Low versus High) and front-end work quality (Low versus High).

Source: Independent Evaluation Group, Expanded Project Supervision Report database.

Note: Front-end work quality = screening, appraisal, and structuring.

Spending sufficient time on front-end work may be particularly important in challenging contexts and projects that are especially complex. An exploratory analysis showed that processing mostly successful or better projects takes longer than processing mostly unsuccessful or worse projects in challenging contexts (specifically, in Africa, Middle East and North Africa, FCS, and IDA and blend) and projects that are especially complex (the Infrastructure industry group; figure 3.8). Delays could occur at any stage of processing between the Concept Note and first disbursement. However, a variety of project examples suggest that cutting short some of the key front-end work quality factors (such as market assessment; client quality; or assumptions, financial models, and project costs) may contribute to weak development outcomes.6 As an example of a project that lacked market assessment, in one IFC project, a missing mining study led to the adoption of an unworkable technology. Deficiencies in client quality can be illustrated by a project in which the management team of an African health-care product company lacked experience in integrating large cross-border mergers. The two largest acquisitions were resold at large discounts, resulting in losses for IFC and all other shareholders. In another project, IFC’s investment in a follow-on private equity fund was not based on a realistic valuation of the first fund, which distorted its projections.

A column charts showing the average elapsed time from mandate to first disbursement for IFC investment projects and subgroups. The left column shows the share of projects rated mostly successful or better while the right column shows the share of projects rated mostly unsuccessful or worse for IFC-wide and subgroups.

Source: Independent Evaluation Group.

Note: FCS = fragile and conflict-affected situations; IDA = International Development Association; MS+ = mostly successful or better; MU- = mostly unsuccessful or worse.

There is a strong relationship between additionality and development outcomes. There is an alignment between additionality and development outcomes in 72 percent of projects evaluated and validated by IEG in CY21–23 (low additionality and low development outcomes or high additionality and high development outcomes; figure 3.9). While 36 percent of the projects had low additionality and low development outcomes, only 15 percent had low IFC additionality and high development outcomes. This demonstrates that additionality is an important factor in development outcomes.

Delivering nonfinancial additionalities is important to improving development outcomes. IEG conducted a desk-based review of a universe of 18 projects whose additionality was rated unsatisfactory or whose development outcomes were rated highly unsuccessful in CY21–23 (with a cutoff date of December 31, 2023) to help identify key areas to improve outcomes.7 We found the following:

Financial additionality occurred 20 times. Financial additionality is usually built into the design of IFC’s financing in a project. Hence, in its two most common forms, it is realized as soon as the financing is disbursed (World Bank 2022c). Among the projects reviewed, the most frequent financial additionality was financing (13 occurrences, 7 achieved fully or partially), followed by resource mobilization (4 occurrences, 3 achieved). Financial additionality was achieved (partly or fully) 65 percent of the time.
Nonfinancial additionality occurred 46 times. In contrast with financial additionality, nonfinancial additionality is usually realized over time rather than at financial disbursement. Nonfinancial additionality goes beyond financial additionality in that it involves helping clients, particularly in challenging contexts, resolve weaknesses in specific areas identified at appraisal based on IFC’s global knowledge and expertise. It is delivered during the life of the project and affects development outcomes. Thus, it often requires planning, monitoring, and continuing engagement (IFC additionality in middle-income countries; World Bank 2022c). Among the projects reviewed, nonfinancial additionality was achieved (partly or fully) 41 percent of the time. The most frequent nonfinancial additionality was improving environmental and social standards (15 occurrences, 9 achieved), followed by stamp of approval (8 occurrences, 4 achieved), knowledge sharing (5 occurrences, none achieved), network sharing (5 occurrences, 1 achieved), and corporate governance (4 occurrences, 2 achieved).
Unforeseen additionality, defined as additionality realized but not anticipated at Board approval, occurred only 3 times.

A table showing the two-by-two matrix of development outcomes (Low versus High) and additionality (Low versus High).

Source: Independent Evaluation Group, Expanded Project Supervision Report database.

In summary, IFC may find it more difficult to achieve nonfinancial additionality than financial additionality. Specifically, in projects with weak development outcomes and weak additionality, nonfinancial additionality occurs more frequently than financial additionality but is achieved less often. The leading reason for IFC not achieving anticipated nonfinancial additionality is its failure to deliver anticipated support, often embodied in advisory services (World Bank 2022c).

Achieving nonfinancial additionality is important for development outcomes. Although IFC has more difficulty realizing nonfinancial additionality than it does realizing financial additionality, IEG suggests that several subtypes of nonfinancial additionality are significantly associated with a higher probability of success in several important outcomes (World Bank 2023c). For example, IFC invested in a private solid waste management company to develop three new greenfield municipal waste-to-fertilizer facilities. The project intended to establish a viable template that could attract greater private sector participation in the solid waste management sector in Central Asia. IFC’s involvement in this transaction was expected to serve as a strong vote of confidence to municipalities, investors, and other financing institutions. However, the financing was partially disbursed because difficulties with the production process led to a slow ramp-up in volume, resulting in higher costs and flawed market and pricing strategies, which, in turn, led to low acceptance of the product by end users. As a result, the project came to a halt and the stamp of approval did not materialize, which contributed to the highly unsuccessful development outcome.

Nonfinancial additionality often helps improve other indicators that contribute to development outcome ratings. For example, supporting clients in improving their environment and social systems can help them meet IFC’s environmental and social standards, ratings of which are one of the four indicators of development outcomes.8

Tracking Outcome Indicators and Measuring Results

IFC could improve the measurement of outcomes by recording more complete information about projects. IEG could not verify nearly 100 outcomes in CY21–23. IEG conducted a desk-based review of 173 IFC investment projects evaluated and validated by IEG during CY21–23. The review identified 842 individual outcomes (676 project-level outcomes and 166 market-level outcomes) based on the typology developed by RAP 2021. Of these, 96 outcomes (11 percent)9 could not be verified or measured because of (i) lack of indicator, (ii) lack of client reporting, (iii) insufficient evidence, (iv) lack of clarity in how to measure outcomes, (v) issues in attributing results to projects, and (vi) too early to tell. Of the 96 outcomes that could not be verified, 76 were project-level outcomes and 20 were market-level outcomes. This represents 11 percent of the total project-level outcomes and 12 percent of the total market-level outcomes.

IFC could enhance the credibility of its development outcome ratings through improving results measurement via better identification and tracking of outcome indicators, particularly for market outcomes. To assess whether the introduction of the Anticipated Impact Measurement and Monitoring (AIMM) system in 2017 overcomes the issue of verifying outcomes discussed in the previous paragraph and confirms the claims from IFC management during the RAP 2023 Board discussions, IEG conducted an analysis of a universe of 21 projects evaluated and validated by IEG with “live” AIMM scores as of December 31, 2023.10 This analysis found continuing challenges in identifying and tracking outcome indicators.11 Twenty-two percent of 170 outcomes (37 outcomes12 —17 percent of project-level outcomes and 43 percent of market-level outcomes) did not have an indicator in the tracking system. For an analysis of tracking outcome indicators, we excluded 8 prepaid projects and projects IFC exited earlier than planned from the universe of 21 projects because they may not have been monitored. After excluding 62 outcomes associated with these 8 projects, there were 108 outcomes (94 project-level and 14 market-level outcomes) used for the analysis of outcome tracking. Of these, 26 percent of outcomes (18 percent of project-level outcomes and 79 percent of market-level outcomes) were never tracked (despite having indicators) or could not be tracked (because they did not have an indicator in the tracking system). That is, even with the introduction of AIMM, the identification and tracking of outcome indicators, particularly for market outcomes, remains a challenge. This is within IFC’s influence, and addressing it could help facilitate including these outcomes in the new Scorecard, where appropriate.13

Advisory Services

RAP’s main source of evidence on IFC advisory services projects is a random sample that IEG validates every year. IEG draws a random stratified representative sample (51 percent) annually from among IFC advisory services projects that have been delivered and self-evaluated by IFC. IEG independently validates the IFC self-evaluations. In this section, when we refer to projects “validated by IEG,” we mean this sample. “IFC-wide” means across IFC advisory services projects as a whole.

Source: Independent Evaluation Group.

Note: IFC = International Finance Corporation.

IFC advisory services’ performance is assessed on three dimensions: development effectiveness, IFC role and contribution, and IFC work quality. Figure 3.10 shows these dimensions and their respective indicators. Development effectiveness is particularly important in this section. It synthesizes a project’s performance across five indicators: strategic relevance, output achievement, outcome achievement, impact achievement, and efficiency. The rating is on a six-point scale: highly successful, successful, mostly successful, mostly unsuccessful, unsuccessful, and highly unsuccessful. Unlike development effectiveness ratings, IFC role and contribution and IFC work quality (including project preparation and design and project implementation and supervision) are based on a four-point scale: excellent, satisfactory, partly unsatisfactory, and unsatisfactory.