• News
    • Latest news
    • News search
    • Health
    • Finance
    • Food
    • Career news
    • Content series
    • Try Devex Pro
  • Jobs
    • Job search
    • Post a job
    • Employer search
    • CV Writing
    • Upcoming career events
    • Try Career Account
  • Funding
    • Funding search
    • Funding news
  • Talent
    • Candidate search
    • Devex Talent Solutions
  • Events
    • Upcoming and past events
    • Partner on an event
  • Post a job
  • About
      • About us
      • Membership
      • Newsletters
      • Advertising partnerships
      • Devex Talent Solutions
      • Contact us
Join DevexSign in
Join DevexSign in

News

  • Latest news
  • News search
  • Health
  • Finance
  • Food
  • Career news
  • Content series
  • Try Devex Pro

Jobs

  • Job search
  • Post a job
  • Employer search
  • CV Writing
  • Upcoming career events
  • Try Career Account

Funding

  • Funding search
  • Funding news

Talent

  • Candidate search
  • Devex Talent Solutions

Events

  • Upcoming and past events
  • Partner on an event
Post a job

About

  • About us
  • Membership
  • Newsletters
  • Advertising partnerships
  • Devex Talent Solutions
  • Contact us
  • My Devex
  • Update my profile % complete
  • Account & privacy settings
  • My saved jobs
  • Manage newsletters
  • Support
  • Sign out
Latest newsNews searchHealthFinanceFoodCareer newsContent seriesTry Devex Pro
    • Opinion
    • Sustainable Development Goals

    Opinion: We had high hopes for private finance and the SDGs. Was our optimism unfounded?

    Nancy Lee of the Center for Global Development outlines the fundamental shifts that need to happen in order to turn billions of private dollars into the trillions needed to meet the SDGs.

    By Nancy Lee // 19 January 2018
    A flag of the Sustainable Development Goals unfurled in Ukraine. Photo by: UN Ukraine / CC BY-ND

    Many were optimistic when the United Nations Sustainable Development Goals were launched in 2015 that the private sector — and domestic resource mobilization — would fund much of the investment needed to achieve these goals — especially as public aid flows stagnate. As 2018 begins, we would do well to reassess these optimistic projections for private finance for development, and ask are the “billions to trillions” materializing?

    The data and trends to date are far from encouraging. Global cross-border private capital flows remain depressed — 6 percent of global gross domestic product in 2016 compared to 22 percent in 2007. Low income countries continue to receive a minimal share — 1.7 percent in 2016 — of total private capital flows to developing countries. World Bank data show that the volume of infrastructure investment with private participation in developing countries is down sharply from over $210 billion in 2012 to $76 billion in 2016. And the poorest International Development Association countries capture very little of these flows: Less than 4 percent from 2011-2015.

    For the private sector windows, or PSWs, of the multilateral development banks, these limited private flows are both a test and an opportunity. They, and bilateral development finance institutions, were conceived as the original impact investors, helping to unlock private investment with both commercial returns and development impact.

    Yet, based on their business volume, MDBs can fairly be regarded as marginal actors. Their annual commitments to both the public and private sectors totaled $118 billion in 2016, compared to estimated annual finance gaps of $2-2.5 trillion for SDG investments, and $1-1.5 trillion for infrastructure investments in developing countries.

    Even if shareholders approve capital increases, the MDBs cannot themselves fill these gaps. PSWs, in particular, must evolve from lenders to mobilizers of private finance for development.

    See more related topics:

    ► How MIGA believes blended finance can help achieve the SDGs

    ► Opinion: How MDBs can unlock private finance for development

    ► Poorest countries need new ways to finance SDGs, UN report says

    That new role has dramatic implications for the business models of PSWs, which currently are charged by shareholders to seek risk-adjusted market returns, price on market terms, meet profit objectives, and avoid distortive subsidies. If they are to become enablers of high-impact investment rather than bankers for their own account — where they sometimes compete with the private sector — business as usual won’t work.

    Many changes will be necessary, but I would highlight two as fundamental: First, greater risk tolerance and lowered expectations for risk-adjusted returns, and second, a major cultural shift to encourage collaboration rather than competition among the MDBs.

    Lower risk-adjusted returns need not mean unsustainable PSWs requiring frequent recapitalization. But difficult decisions have to be made on how to create a new sustainable financial model. This is the time to consider a broad array of options; here are just a few illustrative examples.

    1. Off-balance sheet operations (special purpose vehicles) could systematically be deployed for the riskiest slices of high-impact projects in ways that better crowd in both the private sector and on-balance sheet MDB operations. The recently launched IDA Private Sector Window is a promising move in this direction. A small amount of off-balance sheet investment can be highly catalytic.

    2. To fund such off-balance sheet activities, it would make sense to consolidate and rationalize the many balkanized trust funds aimed at mobilizing private investment in order to achieve greater scale and efficiency. Or small PSW capital increases could be used for the purpose of capitalizing such vehicles.

    3. For some PSWs, there may be scope to increase leverage (debt/equity ratios) and credit exposure. It may even make sense for PSWs to move a notch below the AAA rating. The consequences in terms of funding costs and default probabilities may not be that significant relative to opportunities for engaging in higher impact activities.

    4. Or PSWs could radically change their business models to specialize in high-risk activities such as greenfield infrastructure. PSWs could focus on early stage operations — project origination and construction — and sell projects at the brownfield stage. For sustainability of such a model, much would depend on risk assessments and potential pricing of these long-term assets.

    None of these would be easy, but I believe PSW managers are open to change. Careful financial and impact analyses need to underpin decisions, and shareholders must strongly back whichever options they and management choose.

    Limited MDB collaboration has a direct negative impact on private investor interest. MDBs do not, as a rule, work together to harmonize and pool products — debt and equity investments, guarantees, insurance products — to create large and standardized, yet diversified, asset offerings attractive to institutional investors. Their processes and standards are also not harmonized, boosting transaction costs for project developers and investors.

    The MDBs’ own transaction costs are higher than necessary in the absence of systematic sharing and pooling of project pipelines. And the coherence and efficiency of MDB policy advice — critical to the enabling environment for private investment — would benefit from development of common MDB country strategies. MDB managers are showing a willingness to collaborate more, and are being urged to do so by diverse private and public stakeholders. But significant progress is unlikely without strong shareholder support and creation of formal cross-MDB management and governance systems.

    These issues should be high on the agendas of the G-20 and other fora for shareholders. Working with MDB management, shareholders must lead change — most importantly by finding consensus about their priorities for use of their capital and the trade-offs they are prepared to make. They must also lead on cross-institutional governance that incentivizes MDB collective action and holds MDBs accountable.  

    Inaction should not be an option. Current data do not suggest that private investment of sufficient scale will emerge under the status quo, or that poor countries have a real chance to capture a larger share.

    • Private Sector
    • Economic Development
    • Banking & Finance
    • Worldwide
    Printing articles to share with others is a breach of our terms and conditions and copyright policy. Please use the sharing options on the left side of the article. Devex Pro members may share up to 10 articles per month using the Pro share tool ( ).
    The views in this opinion piece do not necessarily reflect Devex's editorial views.

    About the author

    • Nancy Lee

      Nancy Lee

      Nancy Lee is a senior policy fellow and Director for Sustainable Development Finance at the Center for Global Development. Her work at CGD focuses on the role and performance of multilateral development banks and development finance institutions, mobilizing private development finance, blended finance, sovereign debt restructuring architecture, public-private infrastructure finance, and gender lens investing. Previously, she served as the deputy chief executive officer of the Millennium Challenge Corporation, as the CEO of the Multilateral Investment Fund (now the IDB Lab) at the Inter-American Development Bank, and before that as a deputy assistant secretary at the U.S. Treasury Department.

    Search for articles

    Related Jobs

    • Head of Finance
      Belgium | Western Europe
    • Technical Assistance Officer (Contractual) - FADRM
      Washington, D.C., District of Columbia, United States | District of Columbia, United States | United States | North America
    • Resident Advisor in Monetary and Foreign Exchange Operations (CDOT, Bangkok) (MCMTA)
      Bangkok, Thailand | Thailand | East Asia and Pacific
    • See more

    Most Read

    • 1
      Opinion: Mobile credit, savings, and insurance can drive financial health
    • 2
      How low-emissions livestock are transforming dairy farming in Africa
    • 3
      Opinion: India’s bold leadership in turning the tide for TB
    • 4
      Strengthening health systems by measuring what really matters
    • 5
      How AI-powered citizen science can be a catalyst for the SDGs

    Trending

    Financing for Development Conference

    The Trump Effect

    Newsletters

    Related Stories

    Devex InvestedDevex Invested: There’s a push to lend more in local currency. But how?

    Devex Invested: There’s a push to lend more in local currency. But how?

    FinanceOpinion: How replicable finance models can plug the EMDE infrastructure gap

    Opinion: How replicable finance models can plug the EMDE infrastructure gap

    Development FinanceOpinion: In Sevilla, a moment to bridge the development finance chasm

    Opinion: In Sevilla, a moment to bridge the development finance chasm

    FinanceInside the push to ease dollar debt and boost local lending

    Inside the push to ease dollar debt and boost local lending

    • News
    • Jobs
    • Funding
    • Talent
    • Events

    Devex is the media platform for the global development community.

    A social enterprise, we connect and inform over 1.3 million development, health, humanitarian, and sustainability professionals through news, business intelligence, and funding & career opportunities so you can do more good for more people. We invite you to join us.

    • About us
    • Membership
    • Newsletters
    • Advertising partnerships
    • Devex Talent Solutions
    • Post a job
    • Careers at Devex
    • Contact us
    © Copyright 2000 - 2025 Devex|User Agreement|Privacy Statement