If your past week was anything like the whirlwind mine was, you may be thankful that the World Bank-International Monetary Fund annual meetings are behind us.
One key takeaway is that World Bank President Ajay Banga seems to be turning his focus from the institution’s “plumbing” to his overall vision — namely a focus on jobs.
I wanted to share some insights into the private sector and private capital: from a new securitization deal announced by the Inter-American Development Bank, to the World Bank’s Private Sector Investment Lab, and why measuring and reporting on private-capital mobilization matters.
The World Bank’s Private Sector Investment Lab still seems a bit like a mythological creature, with few public signals on what it does internally or externally. But at a Bretton Woods Committee event last week, Banga gave a glimpse of some of the group of 15 CEOs’ priorities.
They are working on recommendations related to:
• Clarity on regulations, policy, pricing, and tariffs, so that investors can be confident that contracts will be honored.
• Guarantees, especially to cover political risks. This is probably the most developed of the work streams where recommendations have resulted in a new unified guarantee platform at the bank. It launched in July but some of its operational details are still being ironed out. I'll have more on that for you soon.
• The lab wants the International Finance Corporation, the bank’s private sector arm, to take the first loss in transactions. But Banga said, “It sounds great unless you book a loss and then have to go to shareholders to see if you can get more capital.” Meanwhile, IFC is working on a new fund using its retained earnings, potentially allowing it to take junior equity positions
• Foreign exchange risk is what Banga called “the single hardest thing to figure out.” The group is exploring local currency lending, liquidity in local commercial banks, or a facility that might help with part of the currency risk.
• Building an asset class by bundling and packaging investments at scale and selling them off to investors. The bank is also trying to incentivize countries to standardize loans and working with other MDBs to do so as well.
Background reading: World Bank overhauls guarantee business to woo private investors (Pro)
+ Catch up on our coverage of the World Bank-IMF annual meetings.
But multilateral development banks and development finance institutions are generally not mobilizing very much capital — i.e., attracting private investment alongside their deals.
In 2022, private capital mobilization by MDBs was $71 billion, according to a recent MDB joint report. That’s a far cry from the $240 billion needed annually from these institutions by 2030, according to a G20 Independent Experts Group report.
The aid transparency group Publish What You Fund has introduced a new model it hopes these institutions will adopt to better measure private capital mobilization. This model would provide detailed data, helping DFIs and the public understand what is effective in attracting private investors.
Data about the performance of DFI investments is really important to the private sector and can help them become comfortable with investing in emerging markets and developing economies.
“Finance thrives on precedent,” said Nick Anstett, a managing director at Pollination, at a Center for Global Development event last week. While MDBs and DFIs may be reluctant to share the details of their investments publicly, the reality is that most of the information is available one way or another, he said, adding that he often pulls information from paid sources, to put together what he or other investors need.
The Inter-American Development Bank’s private sector arm IDB Invest is leaning into its new “originate to share” business model with the announcement of a $1 billion securitization deal during the annual meetings.
IDB Invest has packaged investments across 20 countries and 10 sectors into a vehicle with three investment tranches and has sold off the risk of those investments. While IDB Invest will continue to manage the assets and monitor their impact, by bringing in the investors, it can free up space on its balance sheet and support an additional $500 million in lending.
It’s the type of transaction envisioned by the G20’s Capital Adequacy Framework recommendations, which urge MDBs to not exclusively hold assets that they generate on their own books.
“Ultimately the market is going to become much more familiar with MDBs, with our performance. We need to continue to work to disclose the strength of the asset class and also the link between the public and private sector, the enabling environment and our role and value add to demystify emerging markets,” Rachel Robboy, IDB Invest’s chief risk officer, tells me.
Read: IDB Invest brings in investors, unlocks $500 million through new transaction
The U.S. International Development Finance Corporation made a record $12 billion in commitments in fiscal year 2024 — with more than 70% of the projects in low- and lower-middle-income countries.
On Monday, I spoke with DFC CEO Scott Nathan about the past year, which was also marked by a major reorganization and rapid hiring efforts that have expanded the agency to almost 700 employees, nearly double its original size.
“It being a different mission, different way of doing business, different funding, plus the growth in employees, with the mission that [the U.S.] Congress has given us, means there's just a lot of cultural adjustment. I mean, just a huge amount,” Nathan told me, adding that it's been a challenge to “gel as a new culture.”
Notably, DFC is nearing its $60 billion portfolio cap: It has maybe a year of investment left, which ramps up the pressure around its pending reauthorization by the U.S. Congress. Among the proposals to tweak a number of its tools and rules as part of an extension of its mandate is also an agreement to roughly double its portfolio cap and expand the countries it can work in.
“If we don't get reauthorized, if we don't get the kind of optimization in our structure and authorities that the reauthorization process would afford us, that would be a really squandered opportunity,” Nathan told the audience at Devex World last week.
Read: DFC has record year following reorganization, but needs reauthorization (Pro)
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The past, present, and future intermingled for Asian Infrastructure Investment Bank President Jin Liqun in recent days.
In the present, he made news calling out U.S. and European tariffs on Chinese electric vehicles as the end of free trade. But at Devex World in Washington, D.C., last Thursday, he sidestepped questions about the future and what qualities he’d like to see in his successor when his second five-year term ends within the next year.
Jin did offer his take on the past — notably the debate about the founding of AIIB in the middle of last decade, which saw the U.S. and Japan decline to join due to their concerns at the rising influence of China, which holds by far the biggest voting share at 26.6%.
Today, another question is what to do about Huawei, the Chinese technology company sanctioned by the U.S. over national security concerns. Jin said AIIB only acknowledged sanctions imposed by the United Nations Security Council, and he made the case that it was in the international community's interest to have all contractors competing “on a level playing field.”
“A multilateral development bank should remain apolitical,” he said. “But for management members to keep this bank apolitical, you have to be politically sensitive.”
Read: AIIB boss says bank is ‘politically sensitive’ but ‘apolitical’ (Pro)
+ Pro members can also watch all the panel sessions, interviews, and conversations from Devex World 2024.
The European Central Bank holds back plan to channel SDRs to development banks. [Climate Home News]
Listen: How multilateral development banks can better address climate change. [Devex]
An insider’s view of World Bank reform. [Devex]
Experts call for innovative ways for the World Bank to work better. [Devex Pro]
Vince Chadwick contributed to this edition of Devex Invested.