Devex Invested: Bilateral DFIs keep growing and growing

One of the biggest changes in the development finance landscape in recent years has been the growth of bilateral development finance institutions, or DFIs — and it turns out that the growth era isn’t over quite yet. In today’s edition we’ll look at how some of those institutions are changing and what’s in store for them in the year ahead.

FinDev Canada will soon have about four times the amount of funding it had when it was founded in 2018, and it has a new mandate to invest in the Indo-Pacific region. Denmark is doubling the amount of capital to its DFI, the Investment Fund for Developing Countries, or IFU.

In the United Kingdom and the United States, the DFIs are under the spotlight amid tight aid spending environments and increased attention on how they are delivering.

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Hockey stick growth

FinDev Canada CEO Lori Kerr described the agency’s exponential growth in investments, staff, and now capital as a “hockey stick kind of growth phase.”

FinDev Canada started with about 300 million Canadian dollars, and in 2021 the government approved an additional CA$300 million that made it to the agency in the past few months after budgeting and approval process delays. It is also set to receive another CA$750 million that was announced by Prime Minister Justin Trudeau in late 2022 as part of the country’s new Indo-Pacific strategy.

“We are super excited about this capitalization” and “the opportunity to more firmly plant Canada in the development finance ecosystem,” Kerr tells me.

While FinDev will look to open a new office in the Indo-Pacific region and make its first few investments this year, it will take a few years to reach an even split of investments across the three regions where it invests — sub-Saharan Africa, Latin America and the Caribbean, and now the the Indo-Pacific. Kerr said that the new influx of government funding will grow investments in all geographies and FinDev doesn’t want to “water down” its work elsewhere as it adds the Indo-Pacific.

Read: FinDev Canada’s rapid expansion amid Indo-Pacific policy push (Pro)

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Doubling down

When Denmark announced that it would significantly increase its aid budget last year, it also said it would also nearly double funding to IFU, boosting its ability to invest in private companies and commercial ventures in low- and middle-income countries.

As part of the expansion, it will also undergo some reforms, officials tell Devex contributor Burton Bollag. It will now focus its investments in three areas: Africa, fragile and post-conflict states, and climate change in low- and middle-income countries.

“We need new tools to free more private capital,” says Dan Jørgensen, Denmark’s minister for development cooperation and global climate policy. “It is important to the climate, the developing countries and Denmark’s role as a green pioneer.”

IFU’s Deputy CEO Søren Peter Andreasen tells Devex the agency is a solid investment, with each Danish krone it invests attracting three times more in private financing.

Read: Inside Denmark’s plan to double capital for development finance (Pro)

A clear view?

British International Investment has a new transparency road map and an ambitious target to become “the most transparent” bilateral DFI in the world, my colleague Rob Merrick reports. That will require quite a lot of work given that it is currently ranked 12th out of 21 on the independent Publish What You Fund DFI Transparency index.

The road map aligns BII with the practices of the Independent Aid Transparency Initiative, by using its framework to publish investment data quarterly and in greater detail. The agency will also appoint a transparency and disclosures officer within the next few months and work to demonstrate how investments help meet the SDGs. The new strategy comes as BII faced criticism from a parliamentary committee for lacking a clear anti-poverty focus.

“This is a positive step,” Gary Forster, chief executive of Publish What You Fund, tells Rob. “If they can deliver on everything in the roadmap, we’ll likely see a big jump in their performance.”

Read: UK development finance arm makes a bid to be the world’s ‘most transparent’

The next chapter

Discussions about the future of the U.S. International Development Finance Corporation, or DFC, are expected to start in the U.S. Congress this year. Some lawmakers have expressed interest in reauthorizing the agency early, in part to make some tweaks.

Among the issues to be addressed are the income level of countries where DFC can work, making a technical fix that would enable it to boost equity investments, and increasing the maximum size of its portfolio. It’s worth noting that a $100 billion cap was proposed when the agency was created, but lawmakers eventually settled on $60 billion. DFC has reached about $41 billion in investments to date.

Most experts I spoke to say it will be a difficult year for most legislation, including any foreign aid bills, so any changes may yet be a ways off. That said, one expert did tell me the agency might avoid some of the more difficult political challenges other foreign aid bills have faced.

Read: Foreign aid red warning lights to watch in the US Congress in 2024 (Pro)

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What we’re reading

How the BRICS group of emerging-market nations doubled in size. [Bloomberg]

Ghana official creditors meet to discuss restructuring terms. [Reuters]

New foundation is ready to help African pharmaceutical manufacturers. [Devex Pro]