‘Billions to trillions’ fatigue sets in among top finance leaders

At a recent high-level discussion on development finance, panelists from Citi, the Gates Foundation, and the World Bank acknowledged what many in the field have quietly admitted for years: The long-heralded “billions to trillions” ambition to mobilize private capital for development hasn’t delivered. “I walked away from [last month’s United Nations General Assembly] thinking there’s so much fatigue around private capital mobilization,” said Stephanie von Friedeburg, managing director and global head of public sector at Citi, during a Devex Impact House event on the sidelines of the World Bank and International Monetary Fund annual meetings. “I think we have to go back to the basics. We have to crawl, we have to walk, and then we have to run.” Panelists, which also included Guangzhe Chen, the vice president for infrastructure at the World Bank, and Kalpana Kochhar, the director of development policy and finance at the Gates Foundation, agreed that while private capital is indispensable to meet global development and climate goals, mobilizing it requires confronting the structural and regulatory constraints. Von Friedeburg said there are five persistent barriers: a shortage of bankable projects, currency risk, weak enabling environments, limited data, and regulation. “The ability for an institution like Citi Bank to put capital at risk in these markets is fundamentally regulated by U.S. agencies and by Basel,” she said, referring to international banking regulations developed by the Basel Committee on Banking Supervision. “Until we make some surgical changes to Basel and ultimately to U.S. regulation, the money won’t move.” Kochhar advocated for a smarter allocation of capital and warned against the blanket use of grants to “leverage” private capital, arguing that such blending often misguides what private finance can or should do. “Private money doesn’t — and maybe even shouldn’t — go to certain sectors,” she said. “In a world of shrinking aid budgets, we have to ring-fence grant money for low-income countries and sectors where returns are societal and long-term,” she said. “We can’t expect private investors to step into every space.” For Chen, the key is to position the World Bank to take advantage of surrounding capital. “Whatever capital we have is far from sufficient to meet all the needs,” he said. “So whatever we do, we have to think about how much we can leverage.” The bank is embedding leverage incentives across its operations — measuring success not just by disbursement but by how much private finance its investments crowd in. Chen said the bank is trying to have a leverage ratio of 1-to-5. “The internal incentive within the World Bank Group is to construct our outcome indicator to magnify that leveraging ratio,” he said. New projects are being designed from the start with International Finance Corporation and Multilateral Investment Guarantee Agency at the table, to blend concessional and commercial finance earlier in the process. A recent example: Senegal’s Dakar rapid transit system, where the World Bank financed infrastructure while private investors financed rolling stock. “The challenge is to do this 10 times, a hundred times more,” Chen said. He also pointed to the Mission 300 initiative, which aims to connect 300 million people in Sub-Saharan Africa to electricity by 2030, with roughly one-third of investment expected to come from private sources. Von Friedeburg noted a “mental mind shift” within MDBs that could unlock new possibilities. Instead of financing projects for their entire lifespan, she said, banks are experimenting with shorter-term instruments designed to get projects built and cash flowing before being refinanced in the debt capital markets. She also praised IFC’s new securitization program, which packages existing assets and sells them to institutional investors. “If they can keep building a portfolio that would allow them to do that at a $500 million clip a year, then they would start to recycle their capital faster and bring in more institutional investors.” Meanwhile, Kalpana pointed to a lesser-known success story: the World Bank’s merger of its guarantee platforms. The change now allows guarantees of up to 95% — a move that, von Friedeburg added, finally makes such instruments attractive to institutional investors. She said that previously, the bank would only guarantee 60% of a project. The 95% guarantee “allows us to sell to institutional investors.” Asked what needs to happen to avoid another decade of stalled conversations, all three panelists emphasized reform — just in different places. For Chen, it’s about domestic reform and requires the countries themselves to take ownership and create an enabling environment with existing money. Kalpana focused more on self-reliance and von Friedeberg said it’s about regulatory courage.