DfID: From grants to impact investments

A farmer benefitting from a private sector grant from the U.K. Department for International Development. A new impact program by DfID encourages investments in agriculture and local businesses. Photo by: Pete Lewis / DfID / CC BY

The United Kingdom’s aid agency is trailblazing a new paradigm in international development — one that not only provides targeted social and development impact, but financial returns as well.

To boost its support to some of the world’s poorest countries, the Department for International Development has allocated 75 million pounds ($120.65 million) to a new Impact program. Under the new initiative, DfID will invest in private sector activities with specific development returns instead of handing out grants or funding programs directly.

DfID has appointed the government’s finance institution, CDC, to manage the Impact Fund. CDC will be responsible for identifying the “right kind” of social impact investment to support. It is now seeking proposals to find suitable investments. While DfID did not indicate return on investment targets, it guarantees the capital would at least be returned “upon exit.”

The program, which is scheduled to run for 13 years, aims to boost the private sector’s role in poverty eradication efforts in sub-Saharan Africa and South Asia by:

  • Encouraging investments in vital services, agriculture and local businesses, using the Impact Fund to bridge the gap in capital finances and also share with investors’ risks.

  • Offering quality market and performance information about successful ventures with development returns to possible investors with the help of Global Impact Investing Network, U.S. Agency for International Development and Rockefeller Foundation.

  • Providing expert technical assistance to achieve targeted results which, if successful, would include returns for investors.

  • Training more than 300 managers from poor countries in areas of business and investment to be capable of managing the projects and developing an industry standard to measure financial and development outcomes of impact investments.

In the press release, Secretary of State for International Development Justine Greening said, “Investors are starting to wake up to the benefits of working in the poorest countries. We can help by removing some of the barriers to investing and by directing investment to where it can make a huge difference to the lives of poor people.”

No specific rate on the financial returns has been released yet, but a DfID press officer told Devex that this project, to start in 2013, is being “actively” explored as it “fits very closely” to how DfID looks into using its budget in future.

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    Adrienne Valdez

    Adrienne Valdez is a staff writer for Devex, covering breaking international development news for the Development Newswire. Before joining Devex, Adrienne worked as a news correspondent for a public-sector modernization publication.