Despite the widespread disappointment with the “billions to trillions” agenda, there has been plenty of innovation by multilateral development banks and development finance institutions demonstrating the potential to mobilize larger amounts of private capital for development. The most promising involves bringing private capital into the capital base of the institution and sharing the risk on multiasset portfolios with private investors. But these innovations have not been widely adopted and scaled up.
MDBs and DFIs persist with outdated “originate to hold” business models — where a financial institution originates an asset with the intention of holding it on its balance sheet as a long-term investment — by using public shareholder capital to invest for their own account.
Too much effort goes into structuring bespoke investments, including those which blend in concessional finance, and mobilizing private capital one transaction at a time. This approach is appropriate for first-time investments in difficult contexts but is not scalable for private capital mobilization in less risky countries and sectors. As a result, private capital mobilization volumes remain low at around $20 billion a year.
About the author
Neil Gregory
Neil Gregory is a senior research associate at ODI. He teaches at Johns Hopkins School of Advanced International Studies and advises development finance institutions and impact investing firms. He previously held a range of senior research, strategy, and operational roles at International Finance Corporation and the World Bank.
