The International Finance Corporation is the member of the World Bank Group that

promotes the growth of the private sector in less developed member countries. The
IFC's principal activity is helping finance individual private enterprise projects that
contribute to the economic development of the country or region where the project is
located. The IFC is the World Bank Group's investment bank for developing
countries. It lends directly to private companies and makes equity investments in
them, without guarantees from governments, and attracts other sources of funds for
private-sector projects. IFC also provides advisory services and technical assistance
to governments and businesses.

Creation

Within a few years of the founding of the International Bank for Reconstruction and
Development (IBRD), it became evident that sufficient provision had not been made
for financing the development of the private sector in countries looking to the UN
system for aid. The Bank's charter restrained it from making equity (capital stock)
investments or from lending money, directly or indirectly, to a private company
without a governmental guarantee. Yet "venture capital" was the very thing needed in
many developing countries to get a variety of productive enterprises underway, and
the amount of venture capital available through private banking and investment
channels was inadequate.

The first public suggestion for an international institution to close this gap appeared
in a report, "Partners and Progress," which Nelson Rockefeller (then chairman of the
advisory board of the Point 4 Program) had submitted to President Harry S. Truman
in 1951. The matter was taken up by the staff of the IBRD, and in 1952, the Bank
submitted proposals for such an institution to the UN Economic and Social Council.
Some members of the Council, including the UK and the US, voiced the fear that the
proposed institution might deter the flow of private capital to the developing
countries. They also objected in principle to an inter-governmental organization's
having the right to purchase shares in private companies.

The majority of members of the Economic and Social Council, however, strongly
endorsed the idea of an international financial institution to aid private sector
development, and by late 1954, a compromise was worked out. The International
Finance Corporation, as originally established, could lend money to private
enterprises without government guarantees, but it was not empowered to make
equity investments, though loans with certain equity features, such as stock options,
were allowed. The 31 countries necessary to launch the IFC pledged their consent
over the next 18 months, and the IFC formally came into existence on 14 July 1956 as
a separate legal entity affiliated with the IBRD.

The IFC's early investments often included such features as stock options and other
profit-sharing devices in lieu of direct equity financing, but the terms were complex
and difficult to negotiate, and it soon became apparent to all concerned that IFC's
effectiveness was severely circumscribed by the restriction on equity investment.
Proposals to amend the charter so as to permit the IFC to hold shares were put to the
Board of Directors and the Board of Governors and approved in 1961—with the
support, this time, of both the UK and the US. The revision of IFC's charter in 1961 to
permit investment in equities made it possible to broaden and diversify operations,
as well as to simplify the terms of investment. With the demand for IFC's services
steadily expanding, the Board of Directors amended the charter again in 1965 to
permit the IFC to borrow from the IBRD up to four times its unimpaired subscribed
capital and surplus.

Purposes

IFC's purpose is to foster economic growth by promoting private sector investment in

its developing member countries. It accomplishes this by providing venture capital
for productive private enterprises in association with local investors and
management, by encouraging the development of local capital markets, and by
stimulating the flow of private capital. The Corporation is designed to supplement,
rather than replace, private capital. It plays an important catalytic role in mobilizing
additional project funding from other investors and lenders, either in the form of
cofinancing or through loan syndications, the underwriting of debt and equity
securities issues, and guarantees. In addition to project finance and resource
mobilization, IFC offers a full array of advisory services and technical assistance in
such areas as capital market development, corporate restructuring, risk
management, and project preparation and evaluation, and advises governments on
creating an environment that encourages the growth of private enterprise and
foreign investment.
Membership

Membership in the IFC is open to all members of IBRD. As of late 2002, IFC had 175
member states.

Structure

The structure of IFC is similar to that of the IBRD. IFC's Board of Governors consists
of those governors of the Bank (IBRD) whose countries are also members of IFC. Its
Board of Directors is composed of all the Executive Directors of the Bank. The annual
meeting of the IFC Board of Governors is held in conjunction with the annual
meeting of the Board of Governors of the IBRD. IFC headquarters are at 2121
Pennsylvania Ave. N.W., Washington, D.C., 20433.

The first president of the IFC was Robert L. Garner, formerly vice-president of the
IBRD. Since 1961, the president of the Bank also has been the president of the
Corporation. The immediate direction of the Corporation is the responsibility of the
executive vice-president, Peter Woicke, whose term became effective 1 January 1999.
IFC has more than 2000 staff, 70% of whom work in Washington, and 30% of whom
are stationed in over 80 IFC field offices.

Activities

A. Financial Resources

IFC's investments are funded out of its net worth—the total of paid-in capital and
retained earnings. Of the funding required for its lending operations, 80% is
borrowed in the international financial markets through public bond issues or
private placements; the remaining 20% is borrowed from the IBRD.

Earnings and Borrowings . IFC's net income for fiscal year 2002 was US $215
million; paid-in capital was US $2,360 million; retained earnings were US $3,938
million; and borrowings amounted to US $16,581 million. IFC may borrow from the
IBRD for use in its lending operations as long as the Corporation's total borrowings
do not exceed four times its unimpaired subscribed capital and surplus.
Disbursements. In 2002 IFC approved 204 new projects; total financing approved,
including syndications and underwriting was US $5.8 billion. The total project costs
of commitments was US $15.5 billion. Since its founding in 1956 and through 2002,
IFC committed more than US $34 billion of its own funds and arranged US $21 billion
in syndications and underwriting for 2,825 companies in 140 developing countries.

B. Investment Policies

Unlike the IBRD, IFC lends to private companies and does not accept guarantees
from host-country governments. It also makes equity investments in developing-
country businesses, and mobilizes additional loan and equity financing in the
international financial markets. Because of the success of IFC's operations, its bond
issues in the international markets have earned triple-A ratings from Moody's and
Standard and Poor's.

IFC is the single largest source of direct financing for private sector projects in
developing countries. Although IFC invests and lends on market terms, it does not
compete with private capital. It finances projects unable to obtain sufficient funding
on reasonable terms from other sources. Normally, IFC does not finance more than
25% of total project costs, so as to ensure that most of the project financing comes
from private investors and lenders. And while IFC may buy up to 35% of the stock of
a company, it is never the largest shareholder and does not take part in a firm's
management. But since IFC does not accept government guarantees, it shares all
project risks with its partners.

IFC finances the creation of new companies as well as the expansion or

modernization of established companies in sectors ranging from agribusiness to
manufacturing to energy to mining. A number of IFC projects involve building up the
financial sectors of developing countries, for example by financing the creation of
institutions such as investment banks and insurance companies.

IFC can provide loans, equity investments, and arrange quasi-equity instruments—in
whatever combination is necessary to ensure that a project is soundly funded from
the outset. The Corporation can provide additional financial support through
contingent financing or full or partial guarantees of other sources of financing. In the
past few years, IFC has made derivative products, such as currency and interest rate
swaps, available to companies in developing countries. It has intermediated several
such swaps for companies in Bolivia, Egypt, Ghana, and Mexico, helping them gain
access to risk-management techniques commonly used by companies in
industrialized countries but not normally available to companies in the developing
world.

C. IFC Investments

The IFC's history has been marked by growth in the number and size of investments
and by a continued search for new ways to assist its member countries. An improved
policy environment in many of IFC's developing member countries has helped the
Corporation to make a larger contribution to economic development. Helping
companies in developing countries achieve a proper balance between debt and equity
financing is a key IFC objective.

In addition to approving debt and equity financing for its own account, in 2002 the
Corporation approved the mobilization of US$ 3.61 billion in financing from other
investors and lenders through loan syndications and the underwriting of securities
issues. It also mobilized considerable cofinancing. Thus, for every US$ 1 of financing
approved by IFC for its own account, other investors and lenders will provide US$
4.75.

The efficient provision of services in such sectors as power, water, transportation,

and communications is critical to successful private sector development. A growing
number of IFC's member countries are opening these sectors, once the preserve of
the state, to private investment and management.

The countries of Eastern and Central Europe and the former Soviet republics are a
new focus of IFC's work. IFC's role includes financing private-sector projects and
advising governments on creating a modern financial sector, selling off state-owned
enterprises, and attracting foreign investment.

IFC advised governments officials in Russia and Ukraine on different techniques for
privatizing state enterprises, and developed privatization programs that can be used
as models by local authorities in both republics. It helped design and implement the
auction of small enterprises in three regions in Russia—Nizhny Novgorod,
Volgograd, and Tomsk—and in the city of L'viv, Ukraine, and produced a manual on
the privatization of small enterprises.

In many developing countries small-scale entrepreneurs with promising ideas are

often unable to get the financing or advice they need to start or expand businesses.
IFC has set up project development facilities in Sub-Saharan Africa, Central America
and the Caribbean, the South Pacific Islands, and Poland to help entrepreneurs
prepare project proposals. Although these facilities do not themselves fund projects,
they help entrepreneurs find loans and equity financing on reasonable terms. The
Africa Enterprise Fund, established in 1989, is a special program devoted to
financing small and medium-sized businesses in Sub-Saharan Africa.

Advisory Services and Technical Assistance. In the course of conducting project

appraisals, IFC may provide considerable technical assistance to companies—for
example, by helping them select a technical partner or a technology, identify markets
for their products, and put together the most appropriate financial package. The
Corporation also advises companies on financial restructuring, helping them reduce
their debt.

IFC advises member governments on an array of issues, such as capital markets

development. It helps governments create and put in place the regulatory, legal, and
fiscal frameworks necessary for financial institutions to operate efficiently. IFC also
provides advice on privatization and on restructuring state enterprises slated for
privatization. The Foreign Investment Advisory Service, established by IFC and
operated jointly with the Multilateral Investment Guarantee Agency and IBRD,
advises governments on attracting direct foreign investment.

IBRD Subscriptions and Voting Power

(as of 23 July 2002)
 VOTING POWER

MEMBER SUBSCRIPTIONS 1 NUMBER OF VOTES % OF TOTAL

1
Millions of 1944 US Dollars.
Afghanistan 30 550 0.03
Albania 83 1,080 0.07
Algeria 925.2 9,502 0.59
Angola 267.6 2,926 0.18
Antigua and Barbuda 52 770 0.05
Argentina 1,791.1 18,161 1.12
Armenia 113.9 1,389 0.09
Australia 2,446.4 24,714 1.53
Austria 1,106.3 11,313 0.70
Azerbaijan 164.6 1,896 0.12
Bahamas 107.1 1,321 0.08
Bahrain 110.3 1,353 0.08
Bangladesh 485.4 5,104 0.32
 VOTING POWER

MEMBER SUBSCRIPTIONS 1 NUMBER OF VOTES % OF TOTAL

Barbados 94.8 1,198 0.07

Belarus 332.3 3,573 0.22
Belgium 2,898.3 29,233 1.81
Belize 58.6 836 0.05
Benin 86.8 1,118 0.07
Bhutan 47.9 729 0.05
Bolivia 178.5 2,035 0.13
Bosnia and Herzegovina 54.9 799 0.05
Botswana 61.5 865 0.05
Brazil 3,328.7 33,537 2.07
Brunei Darussalam 237.3 2,623 0.16
Bulgaria 521.5 5,465 0.34
Burkina Faso 86.8 1,118 0.07
Burundi 71.6 966 0.06
Cambodia 21.4 464 0.03
Cameroon 152.7 1,777 0.11
Canada 4,479.5 45,045 2.79
Cape Verde 50.8 758 0.05
Central African Republic 86.2 1,112 0.07
Chad 86.2 1,112 0.07
Chile 693.1 7,181 0.44
China 4,479.9 45.049 2.79
Colombia 635.2 6,602 0.41
Congo 92.7 1,177 0.07
Congo, Democratic Republic of 264.3 2,893 0.18
Costa Rica 23.3 483 0.03
Côte d'Ivoire 251.6 2,766 0.17
Croatia 229.3 2,543 0.16
Cyprus 146.1 1,711 0.11
Czech Republic 630.8 6,558 0.41
 VOTING POWER

MEMBER SUBSCRIPTIONS 1 NUMBER OF VOTES % OF TOTAL

Denmark 1,345.1 13,701 0.85

Djibouti 55.9 809 0.05
Dominica 50.4 754 0.05
Dominican Republic 209.2 2,342 0.14
East Timor 51.7 767 0.05
Ecuador 277.1 3,021 0.19
Egypt 710.8 7,358 0.45
El Salvador 14.1 391 0.02
Equatorial Guinea 71.5 965 0.06
Eritrea 59.3 843 0.05
Estonia 92.3 1,173 0.07
Ethiopia 97.8 1,228 0.08
Fiji 98.7 1,237 0.08
Finland 856.0 8,810 0.54
France 6,939.7 69,647 4.31
Gabon 98.7 1,237 0.08
Gambia 54.3 793 0.05
Georgia 158.4 1,834 0.11
Germany 7,239.9 72,649 4.49
Ghana 152.5 1,775 0.11
Greece 168.4 1,934 0.12
Grenada 53.1 781 0.05
Guatemala 200.1 2,251 0.14
 VOTING POWER
1
Millions of 1944 US Dollars.
MEMBER SUBSCRIPTIONS 1 NUMBER OF VOTES % OF TOTAL

Guinea 129.2 1,542 0.10

Guinea-Bissau 54.0 790 0.05
Guyana 105.8 1,308 0.08
Haiti 106.7 1,317

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Flip through any of the key financial newspapers or publications or quick surf across
electronic channels towards the close of the financial year in March and you would find that
the government has announced its Exim (Export and Import) policy. Now what role does it
actually play alongside the Union Budget? How relevant is the Exim Policy?

Let us take a closer look at key features of an Exim Policy.

The annual revision of the Export-Import Policy, scheduled for March 31 each year has
assumed a lot of importance.

Who actually announces the Exim Policy?

From a notification point of view, the government has notified the Exim Policy for a period
of five years (1997-2002) under Section 5 of the Foreign Trade (Development and Regulation
Act), 1992. In earlier years, the Exim Policy used to be announced for a longer duration. The
next five-year Exim Policy (2002-2007) will come through a fresh notification.

The policy is usually announced by the Union Minister of Commerce and Industry who co-
ordinates with the Ministry of Finance, the Directorate General of Foreign Trade and its
network of regional offices.

Whom does it apply to?

The regulations and restrictions apply to those involved in commercial trade through the
export and import of items. This becomes particularly important in a country like India,
where the import and export of items does play a crucial role not just in balancing budgetary
targets, but also from an economy developmental viewpoint.

Exports in India are finally witnessing an upward trend at an estimated growth rate of 20 per
cent in the last few months. This is an encouraging and heartening sign of things to come and
the government's efforts should now be focussed to increase and sustain this recent upswing
in Indian exports.

By announcing a separate policy what is the government attempting to achieve?

The main aim is to accelerate the country's transition to a vibrant economy and a leading
global player with a view to derive maximum benefits from any expanding global market
opportunity.

Thus providing access to essential raw materials, intermediates, components, consumable

items and capital goods required to aid manufacture/production of items to boost economic
growth will be encouraged.

Attention will also be paid towards improving the state of various key sectors like agriculture,
industry and manufacturing sectors, making them competitive strength and generating new
employment opportunities. This is done with the final aim to provide the Indian consumer
with good quality products at reasonable prices.
All this sounds fine on paper. But then haven't things gone awry with India's policies
over the years?

That has less to do with policies and more with prevailing circumstances. There have been
several factors responsible for the previously disheartening performance of Indian exports.
Over the past two years, large developed economies have witnessed a general slowdown in
the manufacturing, trade and consumer-spending front.

Over the years, non-tariff barriers have also come up through the developed nations due to
environmental concerns, technical and non-technical standards and the spurt of regional
groupings. This has made it difficult for countries outside the group to penetrate and compete
on an equal footing.

We cannot, however, blame the performance on global factors alone. Our exports share of
approximately 0.7 per cent as a percentage of global trade is due to internal problems rather
than external factors. Some of these factors include high interest on export credit, uncertainty
in export policy and infrastructure constraints.

Paradoxically, these very low exports helped India beat the economic recession facing the
entire world as it was less dependent on external factors.

We keep hearing of last year's Exim Policy being a landmark one. What was the key
focus?

In the period April 2001-March 2002, the Indian government - prompted by a ruling of the
World Trade Organisation's dispute settlement panel - decided to phase out quantitative
restrictions on imports of remaining agricultural, textile and industrial products from April 1,
2001 onwards.

The lifting of QRs on the rest of the 715 items on schedule was an important step for India
and all its trading partners. At least 1,429 items were subject to various kinds of import curbs,
which will be removed over the next two years.

What were the import restrictions?

The Exim Policy prohibits import of certain categories of products, provides for conditional
import of certain items while a majority of goods are now freely importable. A process called
canalisation exists for some categories - which means these can be imported only by
designated agencies.

What is the canalised list?

A number of items like urea are canalised. This means they can be imported only by
designated agencies like MMTC and STC, the government's trading arms. An item like gold,
in bulk, can be imported only by specified banks like SBI and some foreign banks or
designated agencies.

Earlier, items like sugar, edible oil, wheat and rice used to be imported by the government
through canalising agencies to meet domestic demand. However, ongoing liberalisation has
led to many of these items becoming freely importable.
The items which are freely importable fall under the open general licence category. The OGL
is also called the free list of imports - which means anybody is allowed to bring in items
listed under this category.

There are various kinds of restrictions on imports. The banned or prohibited list contains
sensitive items like explosives which are banned for security reasons. Then there are items
which are banned for environment and pollution-related aspects.

Several items like wildlife and its related products are not permitted to be imported following
international agreements. These items can only be imported for specific purpose with prior
permission.

So which are the items which can be imported?

There are a large number of non-sensitive items - mostly consumer goods - which are
currently allowed only if the importer gets a licence. This would relate to food and beverages
products which hotels can import with a specific licence.

What are the current export promotion schemes?

The government had devised a number of schemes to provide incentives to exporters and
encourage them to compete in the global market.

Allowing them to import raw materials free of any duty ensured this. Advance licence,
Export Promotion Capital Goods (EPCG) scheme, SIL and the duty exemption pass book
(DEPB) are among the incentive schemes.

These schemes were attractive when the customs duty levels were high, but these are losing
their importance in view of the continuous reduction in import duty.

What is the SIL product?

There are products which could be imported against an instrument called SIL (Special Import
Licence). This was awarded to exporters on the basis of their annual turnover. Exporters sell
SIL in the market for a premium to improve their profits.

This category has been reduced substantially in the past few years as more items have moved
to the OGL category. Over the past year, the SIL list has virtually ceased to exist, leaving
only the prohibited list in the negative list category.

The prohibited list would thus consist of sensitive items like arms and ammunition, toxic
waste and environmentally sensitive items.

In earlier years, since the items on the SIL list were not freely importable, one had to buy SIL
and surrender it to the Directorate General of Foreign Trade (DGFT) to get permission to
import these items.

What are the expectations from the Exim Policy 2002-03 to be announced?

The focus will be to lower transaction costs for players and make exports more competitive.
The forthcoming Exim Policy is set to continue with the existing system of canalising
procurement of petrol and diesel through state trading companies. This means that if any
multinational such as Shell sets up a retail outlet and imports products from its Singapore
refinery for retailing though these outlets, they would require to canalise it through an Indian
trading company like Indian Oil Corporation.

Media reports say that the finance ministry is expected to provide some benefits to suppliers.
This would include tax breaks (possibly in the form of a service tax exemption) to all
suppliers who send goods from the domestic tariff area (DTA) to the special economic zone
(SEZ).

From a procedural point of view, a small committee may be set up to address procedural
delays and provide a conducive environment for hardware manufacturing. The ministry of
commerce and industry in the previous Exim Policy had discussed this issue.

So what will be the focus in coming years?

The Exim policies in coming years will focus on the need to allow exporters to concentrate
on the manufacture and marketing of their products globally with very few discretionary
controls and procedural delays.

The policy should enable the industry to enhance its competitiveness in the global markets
and achieve its full potential in the areas of its strength.

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Exim Policy may focus on expor