Devex Invested: At World Bank-IMF meetings, it’s all about mobilizing the money

Here are some buzzwords for your bingo card this week: private sector mobilization, guarantees, and jobs. We expect to hear them a lot at the World Bank-International Monetary Fund annual meetings, which kicked off yesterday in Washington, D.C.

The two institutions are trying to balance internal changes, declining bilateral aid budgets, looming debt challenges, and the demands of their largest shareholder — the United States — which sometimes conflict with the demands of other shareholders. IMF Managing Director Kristalina Georgieva perhaps captured the vibe best last week when she said: “Buckle up: uncertainty is the new normal and it is here to stay.” Devex has a team of reporters on the ground at the meetings this week. Read all about what we’re watching here.

It’s clear that mobilizing private capital is a priority for the bank — and what some view as the solution to official aid flows drying up. And though it’s not without its skeptics, it's central to the institution’s current operations — along with a significant internal reorganization which World Bank President Ajay Banga outlined for staff last week.

This priority was reiterated at a town hall meeting with civil society organizations yesterday, where Banga said the bank is working toward the recommendations of the Private Sector Investment Lab he created in 2023 to “confront the persistent barriers that keep investors on the sidelines and design tools to help overcome them.” Those recommendations from the lab include clarifying regulations, providing more political risk insurance, and addressing foreign exchange challenges — and in the case of the International Finance Corporation, the bank’s private sector arm, providing more equity and taking on more risk. In response, the bank has created a single guarantee platform, a unified system that brings together all of the bank’s guarantee products — more on that later this week. And to reduce the foreign exchange risk for borrowers, IFC is now doing one-third of its lending in local currency, Banga said.

But what “could be the most transformational over the coming years,” Banga said, “is an originate-to-distribute model bundling assets into investable products, to bring institutional capital into the emerging markets at some scale.”

That means instead of the bank making loans with the intention of holding them on its balance sheet, it’ll sell loans to private investors.  And last month, IFC completed its first securitization transaction that did exactly that. It bundled $510 million of its loans into a collateralized loan obligation, or CLO, and sold the AAA-rated, least-risky tranche to investors. The deal reflects years of work, and it signals the first step in a shift of IFC’s model from “lend and hold” to “originate to distribute.”

IFC leaders shared an inside look with Adva at how the CLO came to be, and told her that it is meant to be a pilot designed to test investor appetite and build a new asset class for emerging markets. The transaction drew strong interest, with oversubscription in some tranches. While freeing up capital to make more loans, the securitization’s deeper goal is to pull institutional investors, who typically steer clear of developing markets, into IFC’s orbit.

The move puts IFC in line with peers such as the African Development Bank and IDB Invest, which have also experimented with securitizations. But IFC’s version goes further by selling funded assets rather than just transferring risk.

Still, some questions remain as MDBs push ahead on this strategy. Some critics warn that focusing too much on mobilization metrics could tilt investments toward safer, larger markets such as Turkey instead of poorer economies where investments could have more development impact. How mobilization is done will matter. IFC’s first securitization is a fairly diverse set of underlying investments across the world. If IFC pushes ahead with regular issuances, it could also open the door for other DFIs that are considering similar efforts.

Now that the first one is done, what’s needed is an “adequate supply” of these types of products, Banga said: “These institutional investors want a certain amount to come into their book on a certain periodicity with predictability.”

Check out all our coverage of the meetings so far, including:

• Uncertainty ‘new normal’ as World Bank-IMF meet amid aid cuts, discord

• Unpacking the World Bank Group’s first securitization deal and what’s next

• Will the World Bank-IMF meetings try to fly under the political radar? (Pro)

• At World Bank meetings, a push for a UN-led ‘just transition’ framework

+ During the World Bank-IMF annual meetings this week, Devex Impact House will serve as the unofficial hub for forward-looking conversations rethinking how development gets done — and who’s doing it. To request your invite to join us in person or to register for on-demand content, click here.

Leyen the groundwork

Meanwhile in Brussels, European Commission President Ursula von der Leyen unveiled a new investment hub last week, positioning it as a “single entry point” for private sector companies to collaborate on sustainable infrastructure and development projects. The hub is designed to bring in businesses at the earliest stages to shape priorities for the EU's €300 billion Global Gateway initiative, the bloc’s flagship global development strategy that was launched in 2021.

Von der Leyen announced the initiative with gusto and twinkle in her eye: “We have heard from business that you want to be involved early in the process, not just in the implementation, but in shaping priorities and identifying strategic projects,” von der Leyen told an audience of over 150 European company leaders, government officials, and financial institutions. “We thought about it, we’ve worked on your requests, and we came to a good solution — and this is why we are launching the Global Gateway Investment Hub.”

This move, which formalizes the EU's commitment to using private sector capital, drew sharp criticism from civil society organizations. “It uses scarce aid money for objectives that include boosting EU competitiveness,” María José Romero, policy and advocacy manager at Eurodad, tells Jesse. “This is not a credible offer to Global South countries, and represents a major departure from the EU's development cooperation mandate.”

Read: EU unveils investment hub to boost private sector engagement

ICYMI: How to access the EU’s €300B Global Gateway — key tips from the experts (Pro)

+ Gain priority access to candid conversations with nonprofit funders, business leaders, and multilateral policymakers by signing up for Devex Pro with a 15-day free trial today and get immediate access to all our exclusive Pro Briefings and events in addition to our expert analyses, insider reporting, special funding reports, job opportunities and recruiter insights, and more.

Unlocking African capital

Speaking of investment platforms, Africa50 is pioneering a major shift in how the continent finances its infrastructure funding gap — which is estimated to be as high as $108 billion. The platform, launched in 2015 by African states and the African Development Bank, is focused on mobilizing domestic capital by tapping pension funds, insurers, and sovereign wealth funds, demonstrating that African infrastructure is a commercially bankable asset class capable of delivering long-term, risk-adjusted returns.

“The first realization was that there’s a lot of money in Africa — the question is how to unlock it,” Moshood Bode Abolade, Africa50’s investment director, tells our colleague Ayenat Mersie. “We had to walk the journey of showing institutional investors, especially pension funds, that African infrastructure is a bankable proposition. We weren’t just saying this; our portfolio demonstrated that infrastructure here can deliver commercial returns that meet expectations.”

As global partners shift their focus, Africa50’s work is helping to close the gap between the perceived and actual risk of African projects, sending a powerful message to the international community that the continent's infrastructure is a commercial, not aid-dependent, investment proposition.

Read: Inside Africa50’s push to unlock African capital for infrastructure

Related opinion: Pension funds are underused in financing Africa’s infrastructure

The pensioners’ revolution

With rising political backlash against sustainability rhetoric, major institutional investors such as pension funds and insurance companies are quietly becoming the unlikely key players in climate and impact investing. They are motivated by increasing climate risks, but also pressure from their clients: Studies show that a significant majority of pensioners want their funds invested for social good.

This strategic shift is making a significant impact on global finance, as evidenced by the $1.57 trillion impact investment market, with pension funds accounting for 35% of the total capital. A 2024 BlackRock survey found that virtually all global insurers have at least one low-carbon transition goal in their investment plans, confirming that whether or not they vocalize it, institutional investors are increasingly recognizing the undeniable financial and strategic benefits of backing climate-conscious projects.

But they are not completely immune to the politics of the day. “We think a lot about the planetary boundaries and how we can broaden the investable impact space,” Krispijn Bertoen, head of responsible investment at MN, the fiduciary manager for a large pension fund in the Netherlands, told Jesse last week at the Global Impact Investing Network Forum in Berlin. “But I think the political pressure and how the populist right is moving ahead is a big factor, and we will be influenced by it.”

Read: Pension funds and investors quietly back climate investing

Shiny GEMs

New data from the Global Emerging Markets Risk Database, or GEMs, Consortium suggests that investing in emerging markets and developing economies isn’t as risky as many think. Statistics show strong credit performance from these regions, with private lending risk similar to that in advanced economies. Public and sovereign lending also shows high recovery rates, which refers to the percentage the lender will get back.

The public release of these statistics on emerging markets and developing economies provides the data needed to attract private capital and could help these regions address their multitrillion-dollar finance gap.

What we’re reading

The U.S. declines to sign the World Bank directors’ joint statement on climate agenda. [Reuters]

Kenya snags $215 million in savings after Chinese loan currency swap. [Bloomberg]

Cambodia’s microloan “debt traps” are a test for the World Bank. [Devex Opinion] 

EU to push development banks’ climate focus despite U.S. opposition, draft shows. [Reuters]