$50 Billion and Three Lessons from Development Finance CEOs

Last week, AEI, CSIS, and CGD hosted a terrific forum with the heads of the British, German, Norwegian, and American development finance institutions (DFIs).  It was billed as “$50 billion in one room,” a reference to the vast amounts of capital that these organizations bring to the table for development. Here’s what I took away from the session:

1.  Development finance is the future. While we’ve likely reached “peak aid,” DFIs are just getting started. Demand is rising for capital going  directly to private sector firms, especially as the development agenda shifts from grants for social services to, as the Managing Director of Norway’s Norfund Kjell Roland put it, “jobs, jobs, jobs.”

2.  Most people still don’t know much about DFIs. While most developmentistas know all about DFID, USAID, and the World Bank, there’s much less familiarity with their private sector counterparts, the CDC Group, the Overseas Private Investment Corporation, and the International Finance Corporation. (Whenever I speak about OPIC, I always preface with a clarification that it’s not the oil cartel.) Despite their lower profile, DFIs are often the institution called when our governments need to respond to energy shortages, youth unemployment, or private sector growth.

3.  OPIC could do a lot more with a simple rule change. Because of a stipulation going back to the Nixon Administration, OPIC can only make loans and is barred from taking equity positions.  This is an anomaly among DFIs, who are supposed to make investments in the poorest and riskiest markets around the world where many companies are seeking early-stage equity rather than debt. Among the multiple reforms that my CGD colleague Ben Leo and I have proposed to unleash OPIC and make it a more effective US development finance corporation, this is probably fix #1. So I was glad to see Diana Noble, CEO of the UK’s CDC (primarily a DFI offering equity rather than debt), make the case for equity through its own experience and OPIC’s lack of it.