There is danger in development finance institutions lending to financial intermediaries that do not follow their poverty alleviation mandate.
A new report from Oxfam, titled “Risky Business: Intermediary Lending and Development Finance,” puts the spotlight on the lack of transparency and accountability by most FIs receiving funding from DFIs such as the International Finance Corp., the World Bank’s private lending arm.
Often, the report says, FI-funded activities do more harm than good to local communities. One example is the coal-fired power plant project in Odisha, India, which received a $100 million investment from IFC. The project, according to Oxfam, displaced hundreds of families and took away people’s sources of food and livelihood. Worse, they were not properly compensated for the land lost.
Oxfam recommends DFIs use their influence to ensure projects by FIs produce “positive change.” They should boost transparency and accountability by establishing a public registry of all FIs, and measure impact not based solely on an FI’s enhanced capacity or the number of SMEs funded.
The organization also suggests including conditions in contracts permitting DFIs to withhold or withdraw funding from FIs if and when violations are found. Investments that involve wholesale transfer of land should be excluded as well, unless proper consultation, compensation and full transparency were demonstrated.
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