The World Bank has agreed to provide more transparency about loans made by so-called financial intermediaries, a significant move long sought by civil society organizations.
An information void has long existed when the Bank has relied on commercial banks to implement Bank development initiatives. These “financial intermediaries” (FIs) in turn provide loans to small and medium enterprises for many kinds of projects, but the identity of the ultimate recipients is often unknown. FI lending for fiscal year 2019 was $5.6 billion, 63% of IFC lending. The lack of transparency has impeded efforts to assess whether the subsidiary loans are in line with stated objectives or have adverse environmental or human rights consequences.
World Bank Pledge Comes With Caveat
In a major change, the World Bank said March 20 that its private sector lending arm, the International Financial Corporation, will “require” transparency for 70 percent of the lending the IFC does through financial intermediaries.
The Bank said it will “require them to annually report the name, location by city, and sector for subprojects,” both high-risk ones (Category A) and a portion of moderate-risk ones (Category B).
The possible catch is that the transparency decision will depend on the “consent” of the “sub-client” of the financial intermediary. An objection could be raised if national law requires confidentiality. In the event confidentiality is asserted, a statement will have to be posted by the FI on the database of disclosures.
However, this potential loophole is pretty small, said one expert on the subject, because most national laws permit voluntary disclosure.
This disclosure promise, and some others were made in a letter from Bank President David Malpass to US Secretary of Treasury Steven Manuchin that was released April 8 by House Financial Services Committee Chairwoman Maxine Waters.
Waters in November said that unless the Bank made structural reforms, including more transparency, she “is just not interested” in supporting the IFC’s capital increase.
Oxfam on April 8 praised the new policy. Nadia Daar, the head of Oxfam’s Washington office, said: “We’re extremely pleased to see the IFC make this unprecedented move. This commitment will allow communities impacted by high-risk projects to know who is investing the money and what protections and rights they’re entitled to. With 60 percent of the IFC’s overall lending now going to the financial sector, more transparency is long overdue and more should follow.”
Oxfam in 2018 released an extensive report, Open Books, on the opacity surrounding financial intermediary operations.
Malpass’s letter commits the IFC to “encourage our peers and client to expand their transparency.” Many other international financial organizations, including the European Investment Bank and the European Bank for Reconstruction and Development, restrict transparency of financial intermediary operations.
