22 August 2008
International Financial Institution (IFI) lending through financial intermediaries (FIs) has become particularly significant in the Europe and Central Asia (ECA) region, but the IFIs lack adequate policies to ensure social and environmental best practices are applied to subsequent FI lending.
Over the years, the roles of the international financial institutions (IFIs) have been changing. Once the seat of public sector development activity and controversial conditionality, the banks have increasingly shifted to private investments, particularly in Europe and Central Asia (ECA). Recent projects in the ECA region are heavily concentrated in the financial sector. For the European Bank for Reconstruction and Development (EBRD), since 2000, 73% of disclosed projects in the Kyrgyz Republic have been listed as “lending to banks” or “non-bank financial institutions.” The trend is significant in other ECA countries as well: 59% in Azerbaijan, 58% in Georgia, 51% in Kazakhstan, 40% in Mongolia, and 34% in Russia. In terms of the International Finance Corporation (IFC), Azerbaijan and Georgia lead the way with finance and insurance sector projects at 86% and 85% respectively of projects disclosed since 2000.
These projects often decentralize lending by filtering IFI assistance through financial intermediaries (FIs), which then distribute funds to various projects, companies, or other banks. Though the borrowing bank itself must commit to respective social and environmental standards, policies surrounding its lending practices are not as clear. Even where stringent policies exist, it is not generally possible to monitor the use of IFI funds once they have passed through the receiving banks. Civil society groups are concerned the IFIs are sidestepping their oversight obligations, passing responsibility for social and environmental risks to less dependable FIs.
The complete report on IFI environmental and social policies for FI lending can be found below:
The IFIs and Financial Intermediaries in Europe and Central Asia: Implementation of Environmental and Social Standards , by Elizabeth Carlson, Bank Information Center, August 21, 2008 (Acrobat pdf, 97 KB)