Risky investment and human rights abuses: Does the World Bank think this is development?

Governance, Private sector, Rights

Oxfam is calling for the IFC, a branch of the World Bank, to stop investing in high-risk intermediary clients and projects. Here Kate Geary, our land rights policy lead, explains why.

Anyone working in the development business knows about the inexorable rise of private finance being promoted as the panacea to falling public aid budgets. From the Green Climate Fund to the Global Infrastructure Facility, public money is to be used to ‘leverage’ private investment, to boost much-needed financial flows to developing countries.

One particular funding model is gaining prominence, that of using financial intermediaries: channelling development money not directly to projects but via third parties – like commercial banks, private equity and hedge funds. The private sector arm of the World Bank Group (WBG), the International Finance Corporation (IFC) lent $36 billion to financial intermediaries in the four years to June 2013. According to recent research, this outstrips total WBG lending to health by 50 per cent, and is three times the amount the Bank lent directly to education in the same period. Not only has financial sector lending come to dominate the WBG’s portfolio – comprising 62% of the IFC’s total spending, which in turn represents half of WBG activity – but it is increasingly becoming a favoured model of lending for many of the biggest and most influential lending institutions in the world:
from the Brazilian development bank BNDES, to the Green Climate Fund and the European Investment Bank.

Download the land paperGrappling with the debate around this new model of development finance is absolutely crucial for anyone concerned about development issues. On the one hand, the model’s leading proponent the IFC claims that it spurs economic growth and allows it to expand
‘its reach and development impact’. It argues that ‘IFC invests in FIs [financial intermediaries] as a means to achieve the twin goals of ending extreme poverty and boosting shared prosperity.’ But the IFC’s own watchdog – the Compliance Adviser Ombudsman, civil society and affected communities tell a different tale – one of human rights abuses, suffering and repression fuelled by investments through financial intermediaries.

In a new report released today by Oxfam and eleven partners, including from Honduras, Guatemala, India and Cambodia, we expose the human cost of this ‘hands-off’ form of development lending. The report describes some shocking abuses in projects originally born of IFC investments to third parties across Asia, Africa and Latin America, including deaths, repression, land-grabs and

Developing countries need decent financial services and the private sector indeed has a role in plugging the existing financial gap. The IFC can help to attract private finance to poor countries but currently the way it is applying its environmental and social safeguards on investments into financial intermediaries is haphazard at best, lip service at worst.

In 94% of the IFC’s highest risk investment in the last two years, there is no information publicly available about where the investment ended up
Shockingly, in 94% of the IFC’s highest risk investments in the last two years, there is no information publicly available about where the investment has ended up on the ground. While the IFC claims that cases of abuse are exceptional, Oxfam and many others are concerned they may just be the tip of the iceberg, given the veil of secrecy surrounding even the most risky investments.

‘We want the World Bank to know that its money is being used to destroy our way of life. Nowadays we are surrounded by companies. They have taken our community lands and forests. Soon we fear there will be no more land left for us at all and we will lose our identity. Does the World Bank think this is development?‘ a representative of one of the affected communities says in the report. 

An eye-witness to a massacre in Honduras shows researchers a scar on his face from a gunshot wound, explaining:’There was a hail of bullets. I ran and got shot in the mouth’ 

The widow of one of those killed – a mother of four, says: ‘the murder of my husband has changed my life, these are very difficult days, facing fear and economic uncertainty, surviving is complicated.’

our report shows a catalogue of suffering by some of the poorest and most vulnerable communities in the world

The cases highlighted in our report show a catalogue of suffering by some of the poorest and most vulnerable communities in the world. Instead of development benefits, local communities have endured displacement, loss of livelihoods, fear, violence, criminalization and repression. Women are particularly affected through loss of access to common resources on which their families depend, and in some cases sexual violence.
The cases we detail also demonstrate a systemic failure of the IFC to identify risks, and where they do become aware of problems, to take effective action to intervene. The IFC’s failure to be able to account for the impacts of its clients’ sub-projects renders it blind to the disproportionate impacts of its investments on women.

Oxfam and our allies around the world are calling on the IFC to stop investing in high-risk new financial intermediary clients and projects, until it can ensure they will do no harm. Furthermore, we want the IFC to disclose publicly its clients and sub-projects in all of its investments through financial intermediaries, so that the true extent of its problem projects can be made public and the bank held accountable to affected communities.

It remains incumbent on the IFC to demonstrate that lending through financial intermediaries in each case has positive pro-poor and sustainable developmental impact that cannot be achieved through direct investments and that these impacts outweigh the potential risks involved.

Read more

Photo: Women and men of Barillas, Guatemala, maintain a passive resistance and reject the construction of a hydroelectric dam. Credit: Giovany Ujpan Mendoza/ Oxfam

Author: Kate Geary
Archive blog. Originally posted on Oxfam Policy & Practice.