Last week I was at the World Bank’s Land and Poverty Conference in Washington DC, sitting in one of the most luxuriously appointed office buildings I have ever seen, (and I used to work for Lehman Brothers), as we discussed the land issues that so critically affect many of the poorest people on our planet.
This week, this fine setting will play host to the annual Spring Meetings of the World Bank Group, where land issues will also be a big focus for many of the assembled policymakers, academics, NGOs and private sector investors.
Land is a big deal for Oxfam. Last year at around this time, we published Risky Business, looking at the explosion in channelling development finance to private sector businesses indirectly, using so-called Financial Intermediaries (FIs) like banks and private equity funds. In the paper we identified some worrying characteristics of this arms-length financing – opacity, complexity, focus on financial returns over development impact, focus on financial risk over environmental and social risk, lack of oversight or ability to influence the business practices of investee companies, remoteness from the projects ultimately financed and the impacts they have on poor people. We worried that such poorly governed financing was fuelling land grabs.
Since then a lot has happened. Oxfam has been asking the World Bank to freeze its large agriculture investments until it puts in place measures to tackle the threat of land grabs. Pressure on the World Bank and IFC has increased as civil society organisations around the world have drawn attention to the plight of poor rural communities whose lives are turned upside-down by deals that infringe their rights and take away their land, many of which are backed by Development Finance Institutions (DFIs) like the IFC.
And it isn’t just Oxfam and the NGO community raising concerns. An audit report from the CAO (the watchdog for the IFC) of IFC’s financial sector investments was made public in early 2013. It was measured in tone but quite devastating in its implications for IFC and for FI lending.
The report found that IFC is unable to track whether or not these investments are causing harm to poor people and the environment, let alone measure whether they bring development benefits. It found serious irregularities and compliance issues within the existing policies used by IFC, with many projects persistently failing to comply with the IFC’s standards. It found inadequate transparency, with at times a near-total absence of public access to information, which can make it impossible for communities to find out if the IFC is even involved in a project, much less know that they could access grievance and redress mechanisms through the CAO.
The response by the IFC to the audit failed to acknowledge the gravity of the issues raised or to commit to properly addressing them. As a result, a large number of CSOs have written to the leadership of the World Bank Group calling for it to put its financial house in order.
Which is particularly striking given that, back at the Land and Poverty Conference, the transparency and accountability of land deals has been a major theme of presentations and discussions. Speaker after speaker stressed (to general agreement) that land acquisition deals must be subject to the consultation and consent of communities affected, must be based on a good understanding of the local context in terms of food security and existing use of resources like water and land, and must actively seek business models that contribute to improving the livelihoods of local communities and create opportunities and incentives for shared prosperity.
This welcome recognition is backed by the statement just released by World Bank President Jim Kim, acknowledging that land grabbing is a serious risk, that the World Bank has a vital role to play in tackling land grabs, and that it could look at its own practices and safeguards as well as committing to support the Voluntary Guidelines on the Governance of Tenure (VGs) and new principles for responsible agriculture investment, which are essential to protect communities’ rights. For more background see this post from Oxfam’s Hannah Stoddart.
But the conference discussions often overlooked the use of FI lending. And although the World Bank statement makes some broad remarks about transparency and due diligence for FI lending, it ignores the very serious issues raised by the CAO audit.
Washington, we have a problem. Looks like we have two very different World Banks on land grabs. So who do we believe, Dr Jekyll or Mr Hyde? Interms of hard cash, the IFC increasingly dominates. There has been a surge in the channelling of development finance to the private sector through FIs in recent years, from IFC and other DFIs. In 2011, 40% of IFC’s portfolio was made up of lending through FIs. That proportion continues to grow as IFC itself takes up an ever-bigger share of the World Bank Group funding pie (annual reports indicate IFC matches the IBRD at around $20 billion of commitments made in 2012).
In terms of public policy, we’re starting to see a lot of good progress in acknowledging the key issues of transparency and accountability and remedy, so the contradictory shift towards FI lending is a big issue for those concerned about land grabs. But it goes deeper than that, touching on the way in which publicly-backed development finance institutions like the IFC perform their role. Is it sufficient for the World Bank and IFC to pursue a narrow agenda of growth (economic growth generally or growth in private sector investment) under the assumption that benefits will trickle down to the poorest or, should they instead pay attention to the quality of that growth and investment? That means acting in part like a public body, actively seeking to ensure its intended beneficiaries are not in fact harmed, that it supports projects and influences policy in a way that upholds peoples’ fundamental rights (including to food, land and water), and targets scarce resources to investments in projects where there will be a clear and shared benefit to local communities (especially marginalised groups and women) and national development priorities as well as financial returns for the recipients of finance.
Ultimately, when it lends public money to FIs, is the IFC just a bank, or is it a development finance institution?
After all, from where I am sitting, as a former banker myself – if it looks like a bank, walks like a bank, and talks like a bank, the chances are… it’s just a bank.