Oxfam calls for greater scrutiny of hedge funds and banks used to finance development

Published: 18 April 2012

Private funds often lack transparency, accountability and can lead to land grabs

Oxfam today calls for greater scrutiny and control of the funding for development channeled through financial intermediaries such as private equity funds, banks and credit agencies.

The international agency is concerned that the new model of lending, increasingly used by development finance institutions such as the World Bank’s private sector investment arm, the International Finance Corporation, is having a negative impact on the lives of the poorest people particularly when used in investments affecting access to land and other natural resources.

In a new briefing Risky business: intermediary lending and development finance, Oxfam and the Centre for International Environment Law calculate that over half of the lending of the International Finance Corporation is now through intermediaries, while they account for 40 per cent of the lending of the European Investment Bank.

Development finance institutions have an explicit poverty reduction mandate and provide vital funds for a wide range of projects in developing countries from infrastructure and energy to the provision of health care and schools. However financial intermediaries are not covered by the same standards as direct investment and their priorities are often at odds with poverty alleviation.

“Primarily profit-motivated companies”

“Public money intended to reduce poverty is given to private hedge funds and banks without the same level of oversight, transparency or accountability, and often results in making the poorest people it is supposed to help, worse off,“ said Sasanka Thilakasiri of Oxfam, co-author of the briefing.

“These primarily are profit-motivated companies driven by the need to make more money for their shareholders – why should we expect that they will make decisions or properly understand how to benefit the poorest people?” said Thilakasiri.

There is little transparency required of financial intermediaries and the public has virtually no access to information about the activities funded by them. Consultation with communities affected by the investments is often poor or absent, making it difficult to investigate or achieve compensation. The development and social impacts of the projects are often poorly assessed and there are inadequate safeguards to protect poor communities from the risks.

Communities in India lost their land

The briefing cites the example of the GMR Kamalanga Energy Limited (GKEL) project in Odisha, India which was financed by the IFC through a $100 million investment in the India Infrastructure Fund. Almost 1300 families lost the land they depended on for food and employment, many without proper compensation. The communities tried for months to find out even the most basic information about the project and its backers. The case is now the subject of a complaint to the IFC’s redress and compliance mechanism, the Complaints Advisor Ombudsman (CAO).

“Investment decisions involving loss of land and access to critical resources like water can have a devastating impact on the poorest communities who are dependent on the land to feed their families and make a living. For such projects, there must be even greater transparency, due diligence, and attention to community rights to resources – not less,” said Anne Perrault of the Centre of International Environmental Law, co-author of the briefing.

Oxfam is calling for a greater focus on poverty reduction and pro-poor development in the selection and use of financial intermediaries. Lending must be directed more to low-income countries especially where private sector finance is lacking. Unless there is full transparency, genuine sharing of the benefits, and accepted standards are followed like free prior and informed consent, investments which involve the wholesale transfer of land away from affected communities should be excluded.

Read more

Download the report: Risky Business: Intermediary lending and development finance

Issues: Land grabs

Oxfam's GROW campaign

Notes to Editors

The issue briefing has been produced as part of Oxfam’s GROW campaign which is committed to creating a better future, ensuring food security and prosperity for all in a resource-constrained world.

Examples of Development Finance Institutions (DFIs):

  • Multilateral DFIs:
    • International Finance Corporation (IFC)
    • Multilateral Investment Guarantee Agency (MIGA)
  • Regional DFIs:
    • Asian Development Bank (ADB)
    • Inter-American Development Bank (IDB) African Development Bank (AfDB)
    • European Investment Bank (EIB)
    • European Bank for Reconstruction and Development (EBRD)
  • Bilateral DFIs:
    • Britain: CDC Group plc
    • France: Proparco
    • Netherlands: Netherlands Development Finance Company (FMO)
    • Germany: Deutsche Investitions- und Entwicklungsgesellschaft mbH (DEG)
    • Sweden: Swedfund
    • Norway: Norfund
    • US: Overseas Private Investment Corporation (OPIC)
    • Japan: Japan Bank for International Cooperation (JBIC)
    • Canada: Export Development Canada (EDC)
    • Spain: Compañía Española de Financiación del Desarrollo (COFIDES)

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