Jan. 4: The International Financial Corporation of the World Bank responded to this article. Read its response and our answer.

This story was co-published with Foreign Policy.

Accra is a city of choking red dust where almost no rain falls for three months at a time and clothes hung out on a line dry in 15 minutes. So the new five-star Mövenpick hotel affords a haven of sorts in Ghana’s crowded capital, with manicured lawns, amply watered vegetation, and uniformed waiters gliding poolside on roller skates to offer icy drinks to guests. A high concrete wall rings the grounds, keeping out the city’s overflowing poor who hawk goods in the street by day and the homeless who lie on the sidewalks by night.

The Mövenpick, which opened in 2011, fits the model of a modern international luxury hotel, with 260 rooms, seven floors, and 13,500 square feet of retail space displaying $2,000 Italian handbags and other wares. But it is exceptional in at least one respect: It was financed by a combination of two very different entities: a multibillion-dollar investment company largely controlled by a Saudi prince, and the poverty-fighting World Bank.

The investment company, Kingdom Holding Company, has a market value of $12 billion, and Forbes ranks its principal owner, Prince Alwaleed bin Talal, as the world’s 29th-richest person, estimating his net worth at $18 billion. The World Bank, meanwhile, contributed its part through its International Finance Corporation (IFC), set up back in 1956 to muster cheap loans and other financial support for private businesses that contribute to its planet-improving mandate. “At the World Bank, we have made the world’s most pressing development issue—to reduce global poverty—our mission,” the bank proclaims.

Why, then, did the IFC give a Saudi prince’s company an attractively priced $26 million loan to help build the Mövenpick, a hotel the prince was fully capable of financing himself? The answer is that the IFC’s portfolio of billions of dollars in loans and investments is not in fact primarily targeted at helping the impoverished. At least as important is the goal of making a profit for the World Bank.

I reached this conclusion after traveling to Ghana—in many ways typical of the more than 100 countries where the IFC works—to see firsthand the kinds of problems the World Bank’s lenders are supposed to tackle and whether their efforts are really working on the ground. I pored through thousands of pages of the bank’s publicly available reports and financial statements and talked to dozens of experts familiar with its performance in Ghana and many other countries.

In case after case, the verdict was the same: The IFC likes to work with huge corporations, funding projects these companies could finance themselves. Its partners are billionaires and massive multinationals, from oil giants like ExxonMobil to Grupo Arcor, the huge Argentine candy-maker. Its projects include not only glitzy hotels and high-end shopping malls, but also gritty gold and copper mines and oil pipelines, some of which end up benefiting the very corrupt, authoritarian regimes that the rest of the World Bank is urging to change. Nearly a quarter of the IFC’s paid-in capital from member governments—now standing at $2.4 billion—came from U.S. taxpayers, and every president in the World Bank’s 69-year history has been an American. But the United States has had little complaint with these practices, even when they have become a subject of public controversy.

Not long ago, the World Bank’s internal watchdog sharply criticized the IFC’s approach, saying it gives little more than lip service to the bank’s poverty-fighting mission. The report, a major 2011 review by the bank’s Independent Evaluation Group, found that fewer than half the IFC investments it studied involved fighting poverty. “[M]ost IFC investment projects generate satisfactory returns but do not provide evidence of identifiable opportunities for the poor to participate in, contribute to, or benefit from the economic activities that the project supports,” the report concluded. In fact, it said, only 13 percent of 500 projects studied “had objectives with an explicit focus on poor people,” and even those that did, the report found, had a “limited” impact. The IFC did not dispute the conclusions.

There is certainly need in countries like Ghana, whose per capita GDP ranks in the bottom third of the world, with life expectancy in the bottom 15 percent and infant mortality in the bottom fourth. The IFC committed about $145 million in loans and equity in Ghana just in fiscal year 2012. Yet Takyiwaa Manuh, who advises the Ghanaian government on economic development as a member of the National Development Planning Commission, told me she doesn’t think of the IFC’s investments “as fighting poverty. Just because some people are employed, it is hard to say that is poverty reduction.”

But the policies continue. Why? Tycoons and megacompanies offer relatively low risk and generally assured returns for the IFC, allowing it to reinvest the earnings in more such projects. Only a portion of this money ends up benefiting local workers, and critics contend that the IFC’s investments often work against local development needs.“The IFC’s model itself is a problem,” says Jesse Griffiths, director of the European Network on Debt and Development (Eurodad), a Belgian-based nonprofit. “The IFC undermines democracy with its piecemeal, top-down approach to development that follows the priorities of private companies.”

“We’re not saying we’re perfect,” Rashad Kaldany told me. He is a veteran IFC executive and currently its vice president for global industries. The IFC operates “at the frontier,” he said. “We know that not every project will work. It’s about trying to make a difference to the poor and about achieving financial sustainability”—twin goals that are challenging in combination.

When it comes to luxury hotels like the Mövenpick in downtown Accra, however, the IFC offers no apology for its investments, even making the case for them as an economic boon for poor countries. A January 2012 report from the World Bank says hotels “play a critical role in development as they catalyze tourism and business infrastructure,” noting its partners include such “leading” firms as luxury chains Shangri-La, Hilton, Marriott, InterContinental—and, of course, Mövenpick.

In Accra, Mary-Jean Moyo, the IFC’s in-country manager for Ghana, told me the new hotel fights poverty by creating jobs. To illustrate, she recalled how the Mövenpick’s manager “noticed that a few boys roller-skate on Sundays outside the hotel. The manager decided to hire them to work at the pool. That is development and helping local people.” How many were hired, I asked. Six, Moyo responded.

When I spoke with Stuart Chase, the Mövenpick’s manager, he told me that other kinds of investments besides the new hotel he was clearly proud of would do far more to stimulate Ghana’s economy and reduce poverty. Chase, who has lived and worked in Ghana for years,mentioned the country’s congested and potholed roads, poor electricity system, limited food supplies, and lack of trade schools. “There is no hotel school and no vocational training in the country,” he complained. As a result, all the top staff members among his 300 employees are foreign.

Besides, Accra already has close to a dozen luxury hotels. Before taking over the Mövenpick, Chase managed another nearby five-star hotel owned by Ghana’s Social Security and National Insurance Trust, the country’s pension system. So when the IFC decided to finance Prince Alwaleed’s hotel, it was entering into direct competition with the people it claims it wants to lift out of poverty. Moyo acknowledged to me that the IFC didn’t study the local hotel scene before making this investment, unlike its standard practice. “We knew the company and had another successful investment in Kingdom that made the Ghana deal attractive to us,” she said. The other investment? A $20 million deal in 2010 to help develop five luxury venues in Kenya, complete with heated swimming pools, golf courses, and organized safaris.

U.S. Sen. Patrick Leahy, a Vermont Democrat who sits on the Senate Appropriations subcommittee that has jurisdiction over U.S. participation in the World Bank, called the Ghana loan “not an appropriate use of public funds” when alerted to it by a 2011 Washington Times article. The U.S. Treasury Department, which administers American participation in the World Bank, defended the loan, telling the newspaper that the IFC package replaced funding expected from private banks that pulled out when market conditions soured, putting the entire $103 million project at risk. When I was in Accra in July, however, at least two other major hotel projects were under construction with private financing obtained in the same period. The prince’s representatives didn’t respond to requests for comment.

* * *

Luxury hotels and resorts are hardly the only IFC investments that offer at best limited prospects for serving its poverty-fighting mandate. Founded just a dozen years after the World Bank itself, the IFC has in recent years become its fastest-growing unit. It now has a staff of some 3,400 people in 103 countries and made $15 billion in loan commitments in 2012 across about 580 projects—more than double its 2006 total and a figure that’s projected to grow to about $20 billion in the next few years.

The original notion was that while the World Bank was lending directly to poor countries, the IFC would stimulate the growth of private business, entrepreneurship, and financial markets in some of those same countries by lending to and investing in for-profit corporations. The founders, notably including a General Foods executive named Robert Garner, emphasized that the IFC would participate only in projects for which “sufficient private capital is not available on reasonable terms.”

That concept has become muddied over the years, as well-heeled borrowers with excellent credit have sought to take advantage of the IFC’s relatively attractive loan terms and other investment vehicles, plus, in some cases, the cachet associated with World Bank support. The IFC’s growth got a boost in the early 1980s when it was permitted for the first time to raise money from the global capital markets by issuing bonds. More recently, its growth has accelerated as it has entered new businesses, including trade finance, derivatives, and private equity, sometimes to the annoyance of private banks with which it competes.

Today, the IFC’s booming list of business partners reads like a who’s who of giant multinational corporations: Dow Chemical, DuPont, Mitsubishi, Vodafone, and many more. It has funded fast-food chains like Domino’s Pizza in South Africa and Kentucky Fried Chicken in Jamaica. It invests in upscale shopping malls in Egypt, Ghana, the former Soviet republics, Eastern Europe, and Central Asia. It backs candy-shop chains in Argentina and Bangladesh; breweries with global beer behemoths like SABMiller and with other breweries in the Czech Republic, Laos, Romania, Russia, and Tanzania; and soft-drink distribution for the likes of Coca-Cola, PepsiCo, and their competitors in Cambodia, Ethiopia, Mali, Russia, South Sudan, Uzbekistan, and more.

The criticism of most such investments—from a broad array of academics and watchdog groups as well as local organizations in the poor countries themselves—is that they make little impact on poverty and could just as easily be undertaken without IFC subsidies. In some cases, critics contend, the projects hold back development and exacerbate poverty, not to mention subjecting affected countries to pollution and other ills.

The debate is swirling as the World Bank has a new leader, installed in July: Jim Yong Kim, an American physician who recently stepped down as president of Dartmouth College. The bank declined to make him available to comment for this article, and in his brief tenure so far, he has given little hint of his view of the IFC. In both his statement when he took office in July and on his first overseas visit, to Ghana’s neighbor to the west, Ivory Coast, he did note briefly the importance of the IFC within the World Bank Group and of the private sector to global job creation.

The IFC is also in the middle of a change in leadership. Its former head, Lars Thunell, recently completed his term, and Chinese national Jin-Yong Cai, a Goldman Sachs partner who was in charge of the firm’s Chinese banking operations, succeeded him in October. At that time, Kaldany, who had been serving as the IFC’s acting CEO, stepped back to the post of vice president for global industries.

The IFC’s operations have been the subject not only of outside criticism but of significant parts of 2011’s stinging internal report and other critiques from within the World Bank. The 2011 document, in which the bank’s Independent Evaluation Group examined the IFC’s activities over the previous decade, portrayed a profit-oriented, deal-driven organization that often fails to reach the poor, and at times may even sacrifice the poor, in a drive to earn a healthy return on its investments: “Greater effort is needed in translating the strategic intentions into actions in investment operations and advisory services to enhance IFC’s poverty focus.”

But the IFC’s money-generating strategy has at least one benefit: It sustains the jobs of the people who work for it. The “more money the IFC makes, the more the bank has [available] to invest,” says Griffiths, the director of Eurodad. “Staff is incentivized to make money.”

Francis Kalitsi, a former IFC employee who is now a managing partner at private-equity firm Serengeti Capital in Accra, has a similar view. “To get ahead, you had to book big transactions,” he recalls of his time at the IFC. “The IFC is very profit-focused. The IFC does not address poverty, and its investments rarely touch the poor.”

The IFC sets annual targets for the number, size, and types of deals employees should complete, and it awards performance bonuses for reaching these targets, according to several current and former IFC staffers. “If you don’t reach the target, you don’t get a bonus,” says Alan Moody, a former IFC manager who now works elsewhere at the World Bank. Deals often come to the IFC from private companies, not the other way around. “We choose our projects by identifying key clients and asking them what their needs are,” says the IFC’s Moyo. That means, though, that by following private companies’ priorities, the IFC makes investments that are not necessarily aligned with countries’ own development strategies.

Even if the IFC focused more of its resources on poverty, it doesn’t have a good way to track whether its work has any impact. The 2011 report—which advises that the IFC “needs to think carefully about questions such as who the poor are, where they are located, and how they can be reached”—criticizes theIFCfor lacking metrics for its investments, saying it fails to “[d]efine, monitor, and report poverty outcomes for projects.”

The IFC does not contest these criticisms. Its management responded to the evaluation group’s report by stating, “We broadly agree with [the] report’s lessons and recommendations” and conceded that the “IFC has not been consistent in stating … the anticipated poverty reduction effects of a project.” The IFC notes that it several years ago began using a Development Outcome Tracking System (DOTS) to measure the effectiveness of its projects at spurring economic development and alleviating poverty. This system, however, has drawn snickers from a number of IFC clients. They note that the DOTS ratings rely heavily on self-reporting by the recipient companies and depend to some extent on financial data for the entire firm, often with multiple divisions around the world, rather than focusing on the specific area of the IFC-funded project. Still, Kaldany expresses enthusiasm for the effort, saying it is pathbreaking and getting better.

Meanwhile, there has been little evidence of change on the ground. Everywhere I looked—in Ghana, in nearby West Africa, and globally—the IFC still seems to be giving its mandate to fight poverty short shrift.

In finance, for example, R. Yofi Grant, executive director of Databank, one of Ghana’s largest banks, told me that the IFC’s practice of providing loans at attractive terms to multinational companies “crowds out local banks and private-equity firms by taking the juiciest investments and walking away with a healthy return.”

Grant says that the IFC recently organized a $115 million financing package for global telecom giantVodafone to expand its operations in Ghana, even though six telecom companies already operate in the country. Despite such robust private investment, the IFC’s loan package for Vodafone was its second in two years. “That is not poverty reduction, and these are not frontier investments,” Grant says, referring to the IFC’s refrain that it invests where other financiers might not. “The IFC says all the right things and does all the wrong things.”

* * *

A thousand miles east of Ghana are Cameroon and Chad, which exemplify a major and highly controversial domain of IFC investment, one where the stakes are often higher than with hotels and shopping malls. That domain is energy.

As of the end of 2011, the IFC reported a $2 billion oil-and-gas portfolio, investing with 30 companies in 23 countries and, the IFC boasted, achieving “Award Winning Recognition from the Market.” But critics, including environmentalists and nonprofit groups such as the Bretton Woods Project and Christian Aid, contend that the projects often exacerbate the poverty they are supposed to alleviate. The projects, they say, frequently escalate local conflict and corruption, displace communities, disrupt livelihoods, and contribute to the emission of greenhouse gases and other pollutants.

In 2003, an independent review panel within the World Bank even recommended that the bank, including the IFC, pull out of all oil, natural gas, and coal-mining projects by 2008, saying such loans do not benefit the poor who live where the natural resources are found. But the World Bank’s board overruled these recommendations. The bank ultimately agreed to an approach that is “business as usual with marginal changes,” Emil Salim, the Indonesian officialwho led the bank’s review, told Bloomberg News in 2004. In a conference call with reporters at the time, IFC executive Kaldany said, “There was very broad consensus that we should remain engaged; we do add value.”

The example of Chad and Cameroon, however, offers a more complicated picture. In 2000, the IFC invested roughly $200 million with ExxonMobil, Chevron, and others, along with the governments of Chad and Cameroon, to support the construction of a nearly $4 billion oil-pipeline project that experts estimate will generate more than $5 billion in revenue over the 25-year life of the project from wells mainly in landlocked Chad to a port in Cameroon.

The two countries are even poorer than Ghana to the west. Per capita income in Chad ranks 193rd in the world, compared with 185th place for Cameroon and 172nd for Ghana. Life expectancy at birth in Chad, at 48.7 years, is the world’s absolute worst, and the country has been ruled for the last two decades by heavy-handed dictator Idriss Déby.

“Conditions were and are a hardship and horrible,” says Peter Rosenblum, co-director of the Human Rights Institute at Columbia University, who argued that the pipeline project should demand protections for the civilian population. The bulk of the oil revenue was supposed to be set aside for food, education, health care, and infrastructure. But in the face of attacks from rebel groups supported by neighboring Sudan, and asserting a need to defend the pipeline, Déby instead channeled substantial chunks into arms purchases, bringing criticism not only from human rights groups but from the World Bank. As critics of the project had warned, the oil bonanza increased the stakes for control of the country and added to the civil strife.

What happened with Chad is not an isolated incident. Despite perennial controversies over energy and mining projects, often the subject of fierce disputes related to everything from their environmental impacts to the extent they boost authoritarian regimes, the IFC continues to invest in them extensively. Just in 2012, the IFC announced investments in mining projects for gold, copper, and diamonds in places like Mongolia, Liberia, and South Africa, as well as investments in oil and gas projects in Colombia, Ivory Coast, the Middle East, and North Africa.

Moreover, as with Chad’s Déby, the IFC continues to lend and invest in countries with heavy-handed rulers such as Syria (Bashar al-Assad) and Venezuela (Hugo Chávez). Kaldany told me there were about a dozen dictatorships, which he wouldn’t name, where the IFC would simply not do business. But then there is a second tier, where he is inclined to work. “It is a tradeoff. We can have a positive influence,” he said, referring to a recent IFC deal in now civil war-torn Syria to fund microfinance. He said the IFC is insisting on increasingly tight financial controls in such countries to ensure that the proceeds from the projects are targeted directly to the poor rather than to sustaining the dictators’ hold on power. He acknowledged that the controls in the Chad case were not nearly tight enough and that the IFC ultimately had to pull out.

The IFC’s critics see two obvious ways to fix it: dramatically overhaul its priorities or sharply reduce its funding and channel those resources toward the type of World Bank projects that more closely align with its anti-poverty mission.

Kaldany said that the IFC is seeking to increase its number of small projects, of under $5 million and tightly targeted on the poor, and to devote more attention to the poorest of the poor countries. In the most recent fiscal year, it generated 105 of the smaller projects, 20 percent of its total deals, although a much smaller percentage of its total dollar outlays. (IFC officials couldn’t immediately provide that number.)

But don’t count on a new direction. Although its new leadership has remained publicly mum, the IFC’s new chief, Cai, has told people he strongly supports its current strategy.

* * *

In Accra, not far from the new Mövenpick, the IFC’s posh offices—sporting a lawn, flowers, and private parking—sit amid a slum, surrounded by an imposing concrete wall topped by coils of barbed wire. The only paved part of the road to the IFC is directly in front of the guarded complex, which has no sign announcing its identity. The rest of the road is a winding, dusty dirt path filled with potholes and surrounded by hovels erected out of battered metal or wood.

Barefoot children sit amid goats and roving chickens, on ground dotted by garbage and litter. Women cook tiny fish strung onto sticks over an open fire, ignoring the near-100-degree temperatures. I approached them one day in July, and some of them said they had lived there for 15 years. When asked whether they knew what the World Bank is, they said no. When told that it fights poverty, many of them laughed.

“We need help, and we know there are places that help,” said one woman who was cooking as two young boys clung to her legs. “But we have never heard of them.”

Cheryl Strauss Einhorn is a financial journalist and adjunct professor at Columbia Business School.