Devex Invested: The rise and rise of DFIs

Bilateral development finance institutions, or DFIs, are growing at a rate that will make your head spin: In the past decade, the capital they manage has roughly doubled to $84 billion in 2022, according to a Devex analysis. They're playing an even bigger role as the demand for private capital to fund development has grown in recent years.

We’ve got a new report that analyzes these institutions, looking at where their funding is going, what their leaders are prioritizing, and what their futures might look like. Here’s a sneak peek:

• Bilateral DFIs are changing and growing, but questions remain about whether they can truly deliver and draw more private capital to address global challenges. While some experts tell me they’ve improved in some respects, others say they still often fall short on mobilization targets, remain too risk averse to be truly catalytic, and need to improve how they measure and report on their impact.

• DFIs will be asked to deliver more infrastructure finance as demand grows and their government owners push them to do so in part as a response to Chinese investments. Søren Andreasen, the CEO of EDFI, the Association of European Development Finance Institutions, tells me they need to invest differently. “We can have a much more dynamic interplay between DFI capital and private capital in these markets,” he says.

• DFIs increasingly find themselves navigating tensions — between their mandates versus politics; a need to make money versus the urgency to invest in low-income countries; and demands to boost climate financing. “They’re all struggling with the challenge of trying to achieve a whole set of objectives simultaneously,” Nancy Lee, a senior policy fellow at the Center for Global Development, tells me. 

Want to know more about individual DFIs? For analysis of where they invest, along with interviews with leaders at British International Investment, FinDev Canada, FMO — the Dutch entrepreneurial development bank, Swedfund, and more, check out the full report.

Get the report: The growth of development finance (Pro)

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Under new management

The new Inter-American Development Bank president has a slew of challenges awaiting him as he takes over next month — not least to rebuild a sense of calm and hope among staff in the wake of former chief Mauricio Claver-Carone’s ouster after his improper sexual relationship with a staffer was revealed. 

The Brazilian economist Ilan Goldfajn handily won the election in the first round of voting Sunday, defying skeptics who worried that rifts within the Brazilian government — which is transitioning from a right-wing presidency to a left-wing one — would scupper his chances.

“My vision is that the IDB should be the most important multilateral institution in the region,” Goldfajn said Friday at an event hosted by the Atlantic Council, stressing not only the lending role of the bank but also its knowledge base and advisory capacities.

The bank committed to lending more than $23 billion in the last fiscal year, setting a record for the institution. At the event, which featured all five of the candidates, Goldfajn committed to making sure members of staff are “motivated” again, and promised to prioritize diversity and to make IDB more data-driven in its decision-making.

He also laid out three priorities for his five-year term: a focus on the rise of poverty, food security, and inequality in the wake of the pandemic; climate change, with a plan to make green financing 40% of the institution’s lending; and investing in physical and digital infrastructure, including by attracting private capital.

Another race to watch: My colleague Vince Chadwick has an exclusive about the three candidates vying to become the OECD Development Assistance Committee chair.

ICYMI: After sex scandal, IDB looks for a reset at Sunday's vote

 On the radar: The 3-man race to replace Moorehead as DAC chair (Pro)

Just transition

Among the most contentious issues with the global transition to clean energy is who will pay to close down polluting coal plants. The Just Energy Transition Partnership, which last week announced a $20 billion agreement for Indonesia, is a model hoping to help solve the problem by facilitating early decommissioning of power plants, mobilizing private finance, and addressing just transition needs of citizens.

My colleague William Worley spoke with Kate Hughes, a senior climate change specialist at the Asian Development Bank, about the lender’s approach to just energy transitions.

The process can be politically difficult, and in addition to financing and technology issues, the “actual socioeconomic issues are the ones that are the really challenging ones to address,” she says. Similar partnerships, likely to be funded by donors and multilateral development banks, are being discussed for India and Vietnam.

Read more: Asian Development Bank aims to counter risk of just energy transition (Pro)

A rare rebuke

The African Development Bank’s director for gender, women, and civil society, Malado Kaba, has come under fire from an unlikely source: her own institution.

Last month Kaba said that the bank is “not quite yet where they should be” when it comes to gender equality internally. But after Devex published her remarks, AfDB countered that she was “completely misrepresenting” its progress in appointing women to top leadership positions, Vince reports.

Solomon Mugera, AfDB director for communication and external relations, says that the bank’s executive leadership, not including the president, is 50% female and the bank is working toward 50-50 gender parity across its entire workforce. AfDB is also working on other gender equity efforts, he tells Devex in a letter.

Read more: AfDB hits back at its own gender chief claims on lack of diversity

ICYMI: Director says African Development Bank lagging on gender equality

What we’re reading

The Bill & Melinda Gates Foundation’s “niche” role on climate. [Devex Pro]

In a first, a nonprofit buys insurance for Hawaii’s threatened coral reefs. [New York Times]

A green energy alliance with a $100 billion goal gains new partners at the 27th United Nations Climate Change Conference. [Devex Pro]

A new fund helps lower-income countries “leapfrog” to electric vehicles. [Devex]

Why European banks’ financing of the World Cup in Qatar shows that the financial sector should be included in EU corporate sustainability rules. [EU Observer]

Shabtai Gold contributed to this edition.