The International Finance Corporation, the private sector arm of the World Bank, is willing to accept more risk and greater volatility in returns as it steps up its push into the poorest countries, IFC chief executive Lars Thunell has told the Financial Times.

In an interview, Mr Thunell said “the risks are higher, volatility is higher and the cost of doing business is higher” in the poorest countries compared with middle income countries where the IFC has traditionally done most of its business.

But he added: “If you do it right and take some equity, because nobody else is there it can also be rewarding.”

Last year equity investments made up more than a fifth of the IFC’s total financing commitments.

The IFC is at the forefront of World Bank president Robert Zoellick’s strategy for the bank group, which envisages ramping up IFC operations, particularly in the poorest countries, and integrating them more closely with the bank’s public sector arms to create conditions for private sector-led growth.

Mr Thunell said the IFC had increased its capacity to work in poor countries by moving staff into field offices and building up its government advisory business. This includes counselling governments on how to simplify business regulations and create dispute settlement mechanisms.

The IFC also advises private companies doing business in poor countries on corruption and governance issues. Since 2003 it has increased its portfolio of projects in Africa from $140m (£68.8m, €99m) to $1.4bn.

Mr Thunell is keen to expand this further, and to get IFC more involved in fragile and post-conflict states such as Congo. On Friday it signed a co-operation deal with JBIC, the Japanese finance institution, to offer joint loans to developing nations.

A vocal group of non- governmental organisations thinks the IFC and the Bank in general should focus more on microfinance.

Mr Thunell said it already supported microfinance institutions that disbursed a total of nearly $8bn last year and was keen to do more.

But he rejected a microfinance-only approach, saying the IFC could achieve more by also working with the biggest banks in poor countries to help them reach a wider market of individual and business customers.

The IFC is particularly focused on small and medium-sized enterprises, which Mr Thunell said were the “backbone of most economic systems”.

In the past the IFC and the public sector lending arms of the bank have often operated at arms’ length. Now the aim is to get them working more closely together to promote public-private partnerships, particularly in regional infrastructure, from both sides.

Some NGOs, including Oxfam, are concerned about the IFC getting more involved in social sectors in the poorest countries, fearing it will foster for-profit systems in health and education, likely involving fees for service.

Copyright The Financial Times Limited 2007