World Bank Board Denies Recourse to Millions of Victims of Predatory Lending, Sets a Dangerous Accountability Precedent

Last week, the World Bank Group’s Board of Directors overruled its own independent accountability mechanism – the Compliance Advisor Ombudsman (CAO) – and allowed the International Finance Corporation (IFC), the institution’s private sector arm, to avoid accountability for the microfinance debt crisis it has contributed to in Cambodia. In response, CAO Director General Janine Ferretti has resigned. The Board must answer for its actions and explain how it will uphold the integrity of its accountability system going forward.

A CAO investigation found that IFC violated its own Sustainability Framework’s requirements in its investments in six banks providing microfinance in Cambodia, and this noncompliance contributed to predatory lending practices that have led to the loss of land and livelihoods, hunger, increased suicide risks, and threats of retaliation against the very communities that are supposed to benefit from microfinance programs.

The harms caused by the microfinance industry in Cambodia are well documented and were confirmed by CAO. However, in an unprecedented fashion, the World Bank Group Board rejected CAO’s noncompliance findings and recommendations to address the harm from its investments. In direct contradiction to the CAO investigation, and without any evidence, the Board published a statement on June 24th declaring that, ”there has been no policy noncompliance under IFC’s Policy on Environmental and Social Sustainability.” Although required by the Board-approved CAO policy, IFC refused to develop and submit to the Board a management action plan with time-bound commitments to address the noncompliance. Instead, it has promised piecemeal actions in a “Special Management Action Plan” that do not address most of CAO’s recommendations. Furthermore, according to unofficial reports, IFC has suggested that victims of predatory micro-finance lending or other consumers harmed by IFC-financed products will no longer have access to recourse through CAO. This is completely unacceptable.

It is not the role of the Board to determine whether or not IFC Management has acted in compliance with its Sustainability Framework. CAO was established to serve as an independent arbiter and hold the institution accountable to the policy commitments made by IFC’s shareholders. If the Board can reject CAO’s policy on a case-by-case basis, then it means that CAO is no longer a reliable and predictable mechanism and can no longer credibly shield IFC from legal liability.

This decision sets a dangerous precedent for accountability at the World Bank Group. It comes at a time when the Board has already shaken the public’s confidence in its accountability architecture by approving a hasty merger of the institution’s public and private sector accountability mechanisms. At this point, the only conclusion we can reach is that the Board prioritizes its investment portfolio over environmental and social protections.

We call upon the Board to:

1. Meet with us to explain how they reached this decision.
2. Publish the voting record of each member of the Board.
3. Require IFC to accept CAO’s findings and develop an effective Management Action Plan in consultation with the complainants.
4. Disclose how any other current and future cases to CAO alleging environmental and social harms stemming from its microfinance portfolio will be handled fairly and predictably.
5. Explain who will be leading CAO following Janine Ferretti’s departure and before the new mechanism is established, and how this leadership vacuum will not further undermine accountability on other CAO cases.
6. Commit to a transparent and inclusive leadership selection process, which includes civil society participation on the selection committee, to ensure the independence and integrity of the new World Bank Group accountability mechanism. Despite the Board’s assertion that a transparent recruitment process has been underway since June 9th, the job posting, terms of reference, and recruitment process have not been publicly disclosed.
7. Reaffirm its commitment to strong due diligence and supervision to ensure that the costs of economic development do not fall disproportionately on poor or vulnerable people.
8. Reaffirm its commitment to strong accountability and ensure that the institution’s new independent accountability mechanism is equipped to do its work effectively.

Signatories

Organizations

1. AbibiNsroma Foundation – Ghana
2. Accountability Counsel – International
3. ATGL – Tunisia
4. Al-Hayat Center – RASED – Jordan
5. Alternative Law Collective – Pakistan
6. Arab Watch Coalition – United States
7. Asia Indigenous Peoples Network on Extractive Industries and Energy (AIPNEE) – Philippines
8. ASOCIACIÓN AMBIENTE Y SOCIEDAD – Colombia
9. Asociación unión de talleres 11 de septiembre – Bolivia
10. Association for Farmers Rights Defense, AFRD – Georgia
11. Bank Climate Advocates – United States
12. Bank Information Center – United States
13. BankTrack – The Netherlands
14. Both ENDS – The Netherlands
15. Bretton Woods Project – United Kingdom
16. CEE Bankwatch Network – Czech Republic 2
17. Center for Economic and Social Rights (CESR) – Global
18. Centre de développement de la région de Tensift – Morocco
19. Centre for Environmental Justice- Sri Lanka – Sri Lanka
20. Centre for Human Rights and Development – Mongolia
21. Cohesión Comunitaria e Innovación Social – Mexico
22. Colectivo Voces Diversas – El Salvador
23. Community Empowerment and Social Justice Network (CEMSOJ) – Nepal
24. Crude Accountability – United States
25. Deep Sea Mining Campaign – United Kingdom
26. Derecho, ambiente y recursos naturales (DAR) – Peru
27. Dibeen for Environmental Development – Jordan
28. Equitable Cambodia – Cambodia
29. ESPOD (Arab Watch Coalition Association) – Morocco
30. FIAN Germany – Germany
31. Fundación Acue – Chile
32. Fundación Ambiente y Recursos Naturales (FARN) – Argentina
33. Fundación CAUCE: Cultura Ambiental – Causa Ecologista – Argentina
34. Fundación Libera contra la Trata de Personas y la Esclavitud en Todas sus Formas – Chile
35. Fundeps – Argentina
36. Germanwatch – Germany
37. Green Advocates International – Liberia
38. Growthwatch – India
39. HRM “Bir Duino -Kyrgyzstan” – Kyrgyzstan
40. Human Rights Law Centre – Australia
41. Inclusive Development International – United States
42. Indigenous Peoples Alliance Of the archipelagos Chapter Sumbawa (AMAN SUMBAWA) – Indonesia
43. Indigenous Peoples Rights International-IPRI – Philippines/Global
44. Inisiasi Masyarakat Adat (IMA) – Indonesia
45. International Accountability Project – Global
46. International Rivers – United States
47. International Work Group for Indigenous Affairs – Denmark
48. Jamaa Resource Initiatives – Kenya
49. Just Finance International – The Netherlands
50. Just Ground – United States
51. Kapaeeng Foundation – Bangladesh
52. KTNC Watch – Republic of Korea
53. Liberia Artisanal Fishermen Association LAFA – Liberia
54. Manushya Foundation – Thailand
55. Mekong Watch – Japan
56. MenaFem Movement for Economic, Development And Ecological Justice – SWANA/Morocco
57. MiningWatch Canada – Canada 3
58. Nash Vek PF – Kyrgyzstan
59. OEARSE – Democratic Republic of the Congo
60. Oil Workers’ Rights Protection Organization Public Union – Azerbaijan
61. Oxfam International – United States
62. Oyu Tolgoi Watch – Mongolia
63. Pakaid – Pakistan
64. Peace Point Development Foundation -PPDF – Nigeria
65. People Ecology Network – India
66. PFAA – Iraq
67. Phenix Center – Jordan
68. Philippine Movement for Climate Justice – Philippines
69. Psychological Responsiveness NGO – Mongolia
70. Recourse – International
71. RimbaWatch – Malaysia
72. Rivers & Rights – Southeast Asia (Regional)
73. Rivers without Boundaries – International
74. Rivers without Boundaries Coalition – Mongolia
75. Sinergia Animal – Global South
76. Society For Women Rights & Development ( SWoRD) – Pakistan
77. Studies and Economic Media Center – Yemen
78. Surge Africa Organisation – Nigeria
79. Sustentarse – Chile
80. SynDev – Senegal
81. The William Gomes Podcast – United Kingdom
82. Transparentem – United States
83. Trend Asia – Indonesia
84. Uganda Consortium on Corporate Accountability – Uganda
85. Urgewald – Germany
86. WEED – World Economy, Ecology & Development – Germany
87. Wemos – The Netherlands
88. Wedyan Association For Society Development – Yemen
89. Witness Radio – Uganda
90. Yemeni Observatory for Human Rights – Yemen
91. Uzbek Forum for Human Rights – Uzbekistan/Germany

Individuals

92. Dr. Guljakhon Amanova – Uzbekistan
93. Ms. Sophia Cramer – Independent Researcher and Policy Advisor
94. Ms. Fiona Faye, University of Kassel, Afrique-Europe-Interact
95. Prof. Daniel D. Bradlow, University of Pretoria
96. Prof. Arntraud Hartmann, SAIS Europe Johns Hopkins University
97. Prof. David Hunter, Peregrine Environmental Consulting, LLC
98. Prof. Emeritus Shin Imai, Osgoode Hall Law School
99. Prof. Aram Ziai, University of Kassel and Global Partnership Network