Devex Invested: World Bank looks to grow IDA private sector window

Blended finance has its fans and detractors — especially for using the resources of the World Bank’s International Development Association funds to do deals.

The bank has indicated it is on track to replenish its fund for the world’s lowest-income nations to the tune of $95 billion over three years, my colleague Shabtai Gold reports. IDA’s private sector window amounts to just a fraction over the overall planned disbursements, but a key official says the goal is to build up the window.

As IDA works to close an early replenishment cycle next month — accelerated by increased pandemic response expenditure — some have called for it to abandon the spending through the PSW, which was always somewhat controversial.

• “Public sector resources will not be enough to meet our development goals,” Samuel Maimbo, director of development finance at the World Bank, tells Shabtai. The previous two rounds of IDA replenishment saw $2.1 billion deployed through the PSW, catalyzing $10.5 billion in financing. “We want to make sure it continues to develop and evolve.”

• In response to the latest draft of the replenishment — which calls for an increase for the PSW — Charles Kenny, a senior fellow at the Center for Global Development, tweeted that the window is a “slush fund to subsidize [International Finance Corporation and Multilateral Investment Guarantee Agency] … projects that fail internal risk/return hurdles.” And he’s not alone: Civil society leaders have also raised objections, and a U.S. lawmaker previously threatened to hold up the World Bank’s capital increase due to concerns about the PSW.

• But Maimbo says the PSW is essential to meeting broader goals. “We want to see a lot more investments going into fragile and conflict states. This requires a lot of blending and a lot of time,” he says. The goal is for World Bank funds to draw private capital to places where investors would otherwise not tread, he added.

Devex Pro: World Bank says IDA is 'on track' for a $95B replenishment

ICYMI: African leaders seek $100B for early IDA replenishment

DFC’s domestic loan foray flails

Former United States President Donald Trump’s administration raised eyebrows when it authorized the two-year Defense Production Act loan program at the U.S. International Development Finance Corporation. The concerns about an international DFI running a domestic program don’t seem to be unfounded.

A new Government Accountability Office report found that the program had disbursed no loans by mid-October. GAO recommended that DFC and the Defense Department make a plan to evaluate the program’s effectiveness and that DFC utilize a system to ensure it properly accounts for all reimbursable costs.

Pooja Jhunjhunwala, a spokesperson at DFC, tells me that the report “inaccurately portrays DFC’s particular role,” as “the program includes management and close participation from multiple agencies across the government.”

Read: GAO report assesses US DFC domestic loan program

Influencer alert

China’s influence in multilateral development banks is growing. This is partly because the country is increasing contributions, partly due to shifting policy priorities, and partly because it is winning more contracts. The Center for Global Development released a report last week looking at China’s unique role and growing sway. Here are some takeaways in numbers:

• 2 — China is the second largest actor across multilateral development banks.
• 4x — China’s discretionary contributions to multilateral development institutions and funds have quadrupled in the past decade.
• $5 billion — That’s the value of MDB commitments and disbursements in China in 2020, putting it in a unique position as a borrower and a donor.
• $7.4 billion — That’s the total value of contracts that Chinese firms won from multilateral development institutions in 2019, beating out all other countries.

Lowering the ‘green premium’

Scaling tech innovations will be critical to meeting climate goals. The key is reducing the cost difference between green products and others — which Bill Gates calls the “green premium.”

A blended finance mechanism launched by Breakthrough Energy aims to do just that in four areas of climate tech: long-duration energy storage, sustainable aviation fuel, direct air capture, and inexpensive green hydrogen. While it will deploy most of its capital in high-income countries, the ultimate goal is to make these technologies affordable in low- and middle-income countries, Breakthrough Energy Managing Director Jonah Goldman tells my colleague Catherine Cheney.

Read: How blended finance might help lower 'the green premium'

What we’re reading

• An analysis of climate finance takeaways from COP 26. [Phenomenal World]
• Kenya’s biggest bank plans the nation’s first green bond by a lender. [Bloomberg]
• Ford announces a $25 million pledge to support the informal workforce. [Devex Pro]
• A guide for using bonds to bridge the gender equality gap. [IFC]
• A study about the impact of COVID-19 on African banks and businesses. [European Investment Bank]

Shabtai Gold contributed to this edition of Devex Invested.