“DFIs don’t need more money,” but they’re “starving for places to invest it”


The United Kingdom government’s development finance institution, formerly known as the Commonwealth Development Corporation but now known simply as CDC, might well have seen more growth in the last five years than any other government-founded DFI. Between 2016 and 2017 the U.K. government quadrupled the CDC’s investment ceiling to 6 billion British pounds ($8.37 billion) in development assistance, refocused its investments on riskier sectors and geographies, and grew its staff from around 60 to more than 200, all while maintaining a portfolio-wide average of at least 3.5 percent return on investments, as dictated by the Treasury.

Yet Colin Buckley, CDC’s chief operating officer, told a crowd at the Organization for Economic Co-operation and Development in Paris recently, that regardless of the U.K. government’s buy-in, and an increasingly populous landscape of DFIs, these institutions “don’t need more money.”

“The narrative of the moment is that we’ve got the capital part of this right, we now have to face the other blockages.”

— Colin Buckley, chief operating officer at CDC

“We have new DFIs coming online — Canada, Australia, in the U.S. there are discussions about revamping OPIC, expanding its mandate, and we can’t ignore China, where there’s talk of trillions of dollars being made available for partnerships with the private sector, so large amounts of capital that are coming online — so I think the narrative of the moment is that we’ve got the capital part of this right, we now have to face the other blockages,” he said.

DFIs “have more than enough money; what we’re starving for are places to invest that money,” he added.

Buckley — who joined CDC in 2012 after creating and managing a social impact fund in Georgia, as well as managing investments for the Children’s Investment Fund Foundation — said he believes the DFIs are reaching “a plateau in the growth story,” whereby the capital for investment exists, but the “deals” are still locked up.

“We need to unlock the deals, and then we’ll see an increasing need or appetite to take those on,” he said.

A reinvention

So what are those blockages? For one, Buckley said DFIs are simply unable to find companies willing to develop infrastructure projects in the right geographies despite plenty of capital flow, because they believe “development doesn’t pay.”

CDC — which despite its new, riskier geographies, still catches criticism for insisting on an arguably safe 3.5 percent ROI — is involved in some promising infrastructure collaborations, but Buckley said it’s not enough. In 2015, CDC and the Norwegian Investment Fund jointly purchased equity in an energy infrastructure company called Globaleq Africa, which operates energy producing facilities across sub-Saharan Africa, where only 32 percent of the population has access to power. But DFIs struggle to get projects like these off the ground, he said.

Second, Buckley joined in the common refrain across the development community that DFIs simply aren’t reaching small-to-medium enterprises.

SME investment ensures a fertile private sector down the road, because, as Buckley said, “small businesses become big businesses.”

“We’ve tried investment funds, we’ve tried funnelling money through financial institutions, and we’re still not getting enough money into SMEs, so that’s also choking the pipeline,” he said.

Many DFIs are also still modelled to provide debt over equity, Buckley explained, adding that “this is one of the fundamental changes being asked of DFIs, to move from a loan to an equity structure,” which he said is “fundamentally harder” and more demanding than simply making credit decisions.

Asked by Devex how CDC can shoulder more risk in order to invest in SMEs, Buckley said “it’s not about risk,” but about the unwillingness of financial intermediaries in developing countries to work with SMEs.

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