The Development Finance Workgroup includes and leverages the expertise of finance specialists and development professionals by addressing timely topics such as the emergence of impact investing, the complementary roles of public and private finance (and how to blend the two), the continuing quest for financial inclusion, and the increasing importance of digital finance. The Workgroup supports SID-US’s mission by bringing diverse constituencies together to debate critical ideas, innovations, policies and practices, advancing equitable financial development.
On October 24, 2023, the SID-US Development Finance Workgroup convened its annual planning meeting, bringing together participants from the US, Middle East, Europe and Africa. The focus of this gathering was to delve into the key development finance needs arising within each participant’s national context, explore the evolving responses from donors, and confront the challenges posed by development gaps and existing financing opportunities.
These themes will shape the direction of the work group throughout 2024, influencing both discussions and the content shared among its members. The Workgroup aims to foster dialogue on these topics, facilitating the exchange of perspectives amongst stakeholders, including donors, and disseminating knowledge products within the group and broader stakeholder community.
In this blog, we delve into the identities of the various players involved, analyze the latest trends in development finance, and shed light on how the work group serves as a catalyst for discussion and knowledge sharing on these themes.
Setting the Stage
While development finance involves providing financial resources and mechanisms to support projects that foster economic development and improve living standards in a region or country, the development finance space continues to evolve and expand.
Practitioners in development finance strive to secure funding resources from both traditional and emerging sources, designing efficient financial structures to drive sustainable improvements in economically challenged areas. This contributes to an overall enhancement of living standards and economic conditions for the entire population. On the other hand, development finance theorists explore the role of financial systems, institutions, and policies in promoting sustainable economic growth.
As the Workgroup Co-Chairs, development finance means aligning capital with the world's most pressing development challenges through innovation, technology, knowledge sharing, and risk mitigation. It involves strengthening linkages between financial flows and development gaps. However, certain questions arise—what enabling environmental factors must be in place for capital to flow? How are development challenges prioritized? What tools and mechanisms incentivize the use of capital for development needs? Which policies, tools, mechanisms have proven more successful, and how can effective policies be adapted to other countries’ contexts?
These questions shape our workgroup’s agenda for 2024. We aim to provide for the development finance community, including field experts, to share successful strategies. This offers an opportunity for these strategies to be replicated and expanded upon to maximize impact. Our Workgroup encapsulates the roles of significant stakeholders within the development finance landscape.
Development finance institutions (DFIs)
- DFIs, such as the U.S. International Development Finance Corporation (DFC), World Bank, and USAID, play a pivotal role in unlocking private sector capital for investment in emerging markets and developing economies.
- DFIs mitigate risks for private investors through various financial tools like guarantees, loans, equity investments, and technical assistance.
- By sharing, off-setting, mitigating risks, DFIs encourage private capital to flow into projects that might be considered uncertain or risky, mobilizing substantial funds for impactful initiatives in areas like infrastructure, renewable energy, and healthcare.
- Example: In 2023, CrossBoundary, LLC was engaged by DFC to conduct a market landscape assessment on the healthcare sector in India with a corresponding pipeline of opportunities that the DFC could pursue aligned to that assessment. The result was a pipeline of more than 120 promising investment opportunities for DFC, BII and other active investors to consider. A recent post by DEVEX showed the United Kingdom, Denmark, and the US are expanding support to DFIs to reach their respective development goals and objectives. The Workgroup hopes to see more initiatives like the Africa Resilience Investment Accelerator (ARIA), bringing DFIs together to unlock investment opportunities.
Public Sector’s Enabling Role
- The public sector’s role is fundamental in providing an enabling environment for development finance through funding, policy formulation, and strategic oversight.
- Governments mobilize resources through taxation, debt issuance, and public-private partnerships to fund crucial development projects and programs.
- Strengthening public financial management systems, effective budgeting, and expenditure control strengthen development goals and outcomes.
Private Sector Engagement Role
- The private sector has enormous potential to contribute capital, expertise, and innovation to sustainable economic growth.
- Blended finance mechanisms and innovative partnerships, the private sector facilitates investments in infrastructure, technology, climate, agriculture, and other critical sectors, through their access to funding, risk appetite, and business-minded approach, make them an invaluable and necessary player in development finance.
- Responsible investment practices, including assessing environmental and social impacts, and essential for accessing funding.
- Example: A successful example of blended finance involves the raising of US$2.8 million in new capital for a Tunisian biogas company through the USAID INVEST mechanism. This exemplifies how private sector capital can be attracted through such deals.
- To foster continued private sector participation, it is imperative for the private sector to persist in promoting responsible investment practices. This includes the requirement for assessments of potential environmental impacts and impacts and considerations for the effects on women and other marginalized populations. By doing so, the private sector positively influences environmental and social sustainability through its financing endeavors. However, there remains significant room for improvement in increasing private sector investment. Addressing the risks and concerns held by the private sector is critical to unlocking further financing opportunities.
Civil Society’s Strategic Role
- Civil society acts as a watchdog, advocate, and partner to ensure transparency, accountability, and inclusivity in development finance.
- NGOs, community organizations, and advocacy groups, including groups like the Civil Society Financing for Development Mechanism, contribute by monitoring financial processes, demanding responsible fiscal policies, and advocating for equitable resource distribution.
- Civil society strengthens its role as a bridge, facilitating dialogue between communities and financial institutions to align development initiatives with genuine needs and aspirations of the people.
The Development Finance Workgroup will invite stakeholders including financial institutions, private sector corporations and donors to trigger debate on the thematic areas. The Workgroup will operationalize through technical discussions and networking events, the shaping and sharing of latest issues, trends, challenges and success stories from the field.
In its annual planning session, the participants highlighted trending thematic and sectoral areas. Suggestions included enhancing development finance (resources and outreach) and considerations on the impact from milestone events, such as UNFCCC COP28 on the canvas of development finance. Some of the trending themes include:
- Technology has revolutionized the way financial resources are mobilized, allocated, and utilized for financial inclusion and sustainable development. The innovative tools such as digital banking, blockchain, and fintech solutions have enhanced financial inclusion, reduced transaction costs, and increased efficiency in project financing. Technology data analytics and artificial intelligence can be further leveraged to provide accurate risk assessment, enabling informed investment decision-making and participation. Through the workgroup platform, we aim to triangulate how technology can be a catalyst for increased transparency, accountability, and the efficient deployment of resources, enabling increased participation from the private sector actors, and fostering inclusive and resilient economic growth.
- Inclusive development finance involves tailoring financial products and services to meet the diverse needs of various groups, supporting small and medium enterprises, promoting financial literacy, and ensuring access to finance for women, youth, and minority groups. By actively involving all stakeholders, especially those most affected by poverty and lack of opportunity, development finance initiatives can create lasting positive impacts that resonate across communities, ultimately driving more comprehensive and sustainable development outcomes.
- Environmental, Social, and Governance (ESG) related investment aligns financial objectives with sustainable and ethical considerations within development finance. ESG investments can mitigate risks associated with environmental and social challenges and contribute to long-term sustainable development, benefiting communities, protecting natural resources, and fostering resilient economies, driving positive impact, and shaping a future where financial success is intrinsically linked to societal well-being and environmental stewardship. Through our work group platform, we plan to share success stories from the field how incorporating ESG has benefitted not only the recipient communities but stakeholders including donors in addition to highlighting emerging resources like the Environmental, Social, and Corporate Governance: Private Sector Insights written by USAID, the University of Notre Dame, and Purdue University.
What’s Next
- Technical deep-dive event in March-April 2024 – keep an eye on the SID-US website and Newsletter.
- Watch the recording from the annual Workgroup meeting here.
- Visit the LinkedIn group to engage with other Workgroup members and stay in touch with the latest information on the Workgroup.
- Join the Workgroup listserv.
- Contact Christy Sisko or Uzma Ashraf Barton for more information.
About the Authors
Uzma Ashraf Barton is a senior public and financial sector specialist with over 20 years of experience in designing, leading, and implementing domestic revenue mobilization and public financial management projects to increase development financing resources.
Christy Sisko is an accomplished international development and finance professional with a proven track record in international investment, corporate development, and sustainable economic growth strategies.
Uzma and Christy currently serve as Co-Chairs for SID-US's Development Finance Workgroup.