Achieving growth, resilience and prosperity requires an unprecedented mobilisation of resources. Current spending falls far short and public resources cannot fill the gap alone. Private finance must play a much greater role.
Development banks and development finance institutions (DFIs) are central to meeting this challenge. They account for more than 90% of private finance mobilised through development finance in developing countries. However, mobilisation remains well below needs and expectations.
Three institutional factors affect how development banks and DFIs can scale up private capital mobilisation. If leveraged strategically, they can help development banks and DFIs move from being lenders to becoming catalytic mobilisers that systematically crowd-in private investment:
Legal and strategic frameworks, e.g. mandates, strategies, key performance indicators;
Financial frameworks and management, e.g. instruments, risk approaches, capital-adequacy;
Organisational features and culture, e.g. incentives, skills, organisation design.
Private capital mobilisation is marginal in many development banks and DFIs. Most of them were set up to provide sovereign or direct lending and, so far, they have rarely embedded mobilisation as a priority in their mandates. While strategies increasingly emphasise mobilisation, they often remain broad and aspirational, not backed by operational targets or implementation plans. Only a few institutions define key performance indicators (KPIs) for private capital mobilisation; and traditional metrics focused on capital deployment continue to dominate. As a result, mobilisation risks remaining peripheral to development banks and DFI operations.
Financial models primarily focus on direct financing of senior debt (particularly sovereign lending by development banks), which limits private capital mobilisation. Mobilisation instruments such as equity, guarantees, mezzanine finance and securitisation remain underused. While maintaining high credit ratings based on robust financials and sound risk management is fundamental, evidence shows substantial room to deploy more catalytic financing without compromising financial robustness.
Organisational design, incentives and skills also need to align better with mobilisation. The deployment of finance tends to dominate staff incentives, which can create disincentives to mobilisation. Unlocking commercial financing means creating space for, and structuring of financial transactions that involve multiple partners and risk sharing. This requires staff sufficiently skilled in structured finance.
For several years, development banks, DFIs and their shareholders have been signalling their willingness to play a greater role in private finance mobilisation, amid the overall drive to strengthen international development finance. Several development banks and DFIs are changing their strategies, financing and operations to become more efficient and enhance their role as catalytic mobilisers of private capital. These examples show that progress is possible, but significant variation persists across development banks and DFIs, highlighting the need for systematic changes across the entire development banking landscape and all three institutional levers.
Clarifying mandates and strategic direction; enabling financial models and risk frameworks that support catalytic mobilisation; building mobilisation capabilities; and modifying operational incentives are key steps for development banks and DFIs to play their part fully in the mobilisation agenda. This includes making private capital mobilisation a distinct institutional function, using strategic guidance, updated mandates or shareholder declarations to signal priorities, and moving away from over-reliance on senior debt and an originate-to-hold model. Embedding mobilisation in staff performance frameworks – and fostering a culture of catalytic mobilisation more broadly – can also help foster the necessary capacity and incentives.
Collective action across development banks and DFIs is key to amplifying impact, including through the DAC’s development of a policy roadmap to work as an efficient system in mobilising private finance. With decisive shareholder support, development banks and DFIs can use institutional levers to unlock greater volumes of private finance, helping to scale financing for growth, resilience and prosperity.
In identifying institutional levers to increase private finance mobilisation efforts and impact, this report contributes to the broader agenda of realising the investment potential of private capital in developing countries. It provides data, information and evidence on the state of play; and it identifies how development banks and DFIs can better equip themselves to make efficient use of scarce development finance and mobilise private capital at the necessary scale and speed.
