What is a development finance institution?
Development finance institutions (DFIs) - are government backed institutions which invest in private sector projects in developing countries with the aim of creating jobs and supporting sustainable growth.
A Brief History
DFIs emerged right after WW2. CDC was established in 1948, DEG in 1962, IFU in 1967, and FMO in 1970. Gradually, more and more countries considered ways to support private sector investments in developing countries and subsequently decided to set up their own DFI.
In 1992, seven European DFIs agreed to establish the Association of European Development Finance Institutions (EDFI) to strengthen cooperation and to facilitate knowledge-sharing and learning. Other institutions progressively joined the Association, which today represents fifteen members. EDFI remains open to new members. Please visit the members section for more information on the eligibility criteria.
EDFI aims to play an important role in helping members respond to the new development paradigm by stepping up its communications and adding more resources. EDFI has also established a new Management Company, which already manages ElectriFI, an EU-funded facility to support energy access, and is expected to receive further 3rd party mandates.
European Development Finance Institutions (EDFI)
EDFI consists of Institutions, established in a Member State of the European Union or in a Member State of the European Free Trade Association (E.F.T.A), which are effectively exercising or planning to undertake activities within the field of development finance for the private sector in countries outside the European Union and which are considered “bilateral institutions”. Collectively, these member institutions employ more than 2,138 investment professionals and support staff (end of 2017), working from headquarters in Europe and 42 overseas offices in more than 20 countries in developing regions.
The total investment commitments from European DFIs have tripled over the past 10 years.
Germany, Cologne
DEG
For 55 years DEG, a subsidiary of KfW, has been a reliable partner to private-sector companies operating in developing and emerging countries. We provide them with long-term financing and promotional programmes, and advise them as they implement their investments. They can thus develop successfully and sustainably, while generating local added value and creating qualified jobs. As a development finance institution, we deliberately enter difficult markets as well, and promote private sector expansion there.
Copenhagen, Denmark
IFU
IFU provides risk capital and advice to companies wishing to set up business in Africa, Asia, Latin America and parts of Europe. Investments are made on commercial terms in the form of equity and loans. The purpose is to contribute to economic and social development in the investment countries.
IFU and IFU managed funds have co-invested in more than 1200 companies in 100 countries in Africa, Asia, Latin America and parts of Europe. Committed investments total DKK 184 billion, of which IFU has contributed DKK 20 billion.
Netherlands, Hague
FMO
The Netherlands Development Finance Company (FMO) (Dutch: Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V.) is a Dutch development bank structured as a bilateral private-sector international financial institution based in the Hague, the Netherlands. FMO manages funds for the Ministries of Foreign Affairs and Economic Affairs of the Dutch government to maximize the development impact of private sector investments. It is licensed as a bank and supervised by the Dutch Central Bank.
The Dutch government holds 51% of the shares, but FMO operates as a commercial company. Due to its relationship with the Dutch government, it is able to take risks which commercial financiers are not able or not prepared to take. The FMO has a AAA rating from Standard and Poor's. As of December 2017, the bank´s total asset valuation was €8.32 billion (US$9.67 billion), and its shareholders' equity was €2.83 billion (US$3.29 billion).
FMO´s mandate is to provide long term capital for projects in countries in which commercial investors do not yet dare to invest. It invests risk capital in companies and financial institutions in developing countries and has a strict policy on maximizing development impact with a methodology designed to make sure that FMO's return on investment is not just financial but also has positive environmental and social effects.
UK, London
CDC Group
CDC Group plc (formerly the Commonwealth Development Corporation, and previous to that, the Colonial Development Corporation) is a development finance institution owned by the UK government. The Department for International Development is responsible for CDC, with shareholder duties managed by the Shareholder Executive. It has an investment portfolio valued around £4.8 billion (year end 2016) and since 2011 is focused on the emerging markets of South Asia and Africa.
Overseas Private Investment Corporation (OPIC)
https://www.opic.gov/
The Overseas Private Investment Corporation (OPIC) is a self-sustaining U.S. Government agency that helps American businesses invest in emerging markets. Established in 1971, OPIC provides businesses with the tools to manage the risks associated with foreign direct investment, fosters economic development in emerging market countries, and advances U.S. foreign policy and national security priorities. OPIC helps American businesses gain footholds in new markets, catalyzes new revenues and contributes to jobs and growth opportunities both at home and abroad. OPIC fulfills its mission by providing businesses with financing, political risk insurance, advocacy and by partnering with private equity investment fund managers.
FinDev Canada
https://www.findevcanada.ca/en/homepage
Prime Minister Justin Trudeau announced on May 5, 2017 the Government's decision to establish a new Development Finance Institution (DFI) in Montreal. With an initial capitalization of $300 million, the DFI will draw upon a range of financing instruments to support private sector investment in developing countries, with a particular focus on clean growth as well as women and youth-led businesses.
While Official Development Assistance has helped produce significant development gains, meeting the 2030 Agenda for Sustainable Development goals will require more resources than Governments can provide. It is estimated that achieving the Sustainable Development Goals will require a combined global investment of as much as US$7 trillion by 2030—a level of investment that will require a coordinated international effort—as well as the directing of resources to where they are needed most.
There is growing consensus in the development community that the private sector has a key role to play as the main driver of economic growth and development. Developing countries are turning their attention to increasing private investment, rather than additional development aid grants. Foreign direct investment and other private financial flows now dwarf development aid by roughly 5 to 1. Yet the private sector is very often unable or unwilling to make what are seen as risky investments in such countries without support.
DFIs are a visible form of support to optimize the contribution of private investment to development. DFIs respond to the specific challenge faced by companies operating in developing countries in getting access to the finance necessary to grow their businesses.
A DFI will address this challenge by providing Canada with an innovative, cost effective financing tool to support economic growth in developing countries. According to some estimates, $1 invested by a DFI can leverage an additional $12 in private sector investments. DFIs are self-sustaining over time given their focus on sustainable business ventures. A DFI would complement, not substitute private investment and ODA.
The new Crown Corporation will be established as a subsidiary of EDC to enable quicker implementation. Canada’s new DFI will be operational by January, 2018 with a view to concluding transactions that same month.