IFC's Makhtar Diop on how to 'think in a context of uncertainty'

Development finance institutions are under the microscope in many ways, with experts and advocates asking questions about transparency, additionality, and their role at a time when financial markets seem increasingly interested in environmental, social, and governance investing, including green bonds. The International Finance Corporation is no exception. Makhtar Diop, who took the post of IFC managing director about a year ago, has had to contend with many of these questions and a pandemic as he’s sought to chart his path at the organization. While last year was about meeting the moment of the crisis, this year will be about “how to make the best solution, the best decision in a very uncertain time,” Diop told Devex. Increasing unpredictability will mean IFC must “be more equipped and tooled to think in a context of uncertainty and will require that we take risk.” Diop spoke with Devex about some of the concerns that often arise for development finance institutions. The conversation has been edited for length and clarity. There are particular concerns about investments in financial intermediaries by IFC and other DFIs, as well as the often limited transparency around those investments. Are you pushing those intermediaries to do more reporting on impact so you can track who is getting the financing and its impact? This is one of the things that we are pushing, actually. We don't want to give credit lines if the company, the bank, is using the same risk profile, the same strategy and you just add liquidity to do more of the things they were doing. You want to make sure that they're doing things differently. So we have a certain number of criteria and a way to measure some of the credit lines that we want to use, like for gender inequality. I just came back from Tanzania, where it's something that we are doing and we will do more of. We have a good way of monitoring it. Is it sufficient? We can do more — not on the monitoring, but on building the capacity within institutions to be able to measure and appraise projects in those sectors faster and better. It happens sometimes that [for] the segments that we would like some of the banks to reach, they don't internally have enough capacity to do a proper assessment and to be able to build a solid pipeline of bankable projects. So we're also helping them strengthen that capacity. I’ve heard concerns that IFC is sometimes crowding out private investors. How do you ensure additionality? Have we crowded out some people? I don't think so. I think that whenever we have been here, we have brought something that other investors didn't bring to the table. I don't have any evidence there were similar products that were offered and we're just competing and racing to the bottom. We don't even do that. If it was a race to the bottom in terms of pricing — which is maybe the only element that would make a difference — people would have certainly been going to other actors, because in some situations, we have prepared deals and investments that the client took to other partners to finance, commercial banks, because they had excess liquidity that they needed to place. IFC helped pioneer green bonds, which are now attracting a lot of attention in capital markets. As interest grows in ESG, green bonds, and similar instruments, how does that change IFC’s role? You talk about green bonds 10 years ago, but it was kind of a novelty. Now it's becoming something very common. So we are helping on two things. One thing is to say, “I am issuing a green bond”; it’s another thing to ensure that it's a really green bond. Secondly, we have realized that green is not enough. We need to link it to sustainability. The new bonds we launched — BEST Bond, MCPP One [Planet] — is the kind of new trend that we are trying to set. Sustainable bonds are a bit more complex because some of them … include elements that are sometimes difficult to measure and to find good criteria. So we still think that we have a lot of value addition in terms of content, substance, and the structuring of projects in a green bond, but we are also moving out of it and entering new territories. You have made increasing investment in Africa a key focus, and many investors consider it a riskier place to invest. As you increase investments on the continent and in lower-income or fragile states, are you willing to take on more risk? Our targets, in terms of working on [fragile and conflict-affected states] and low-income countries, means that we're taking risk, but it's a daily effort because we need to measure in every transaction the risk appetite. I think that the risk appetite is there, but it needs to be reasonably articulated. So you are taking informed risks that we could manage. Over time, we need to demonstrate and a bit remove that image that we are risk-averse because, you know, I don't think that it’s often reflecting the reality. The risk-taking that I've seen is much higher than one could think about outside when you know the level of our standard in terms of governance.