Financial frameworks and management determine how development banks and development finance institutions (DFIs) use their balance sheets, instruments and risk policies to mobilise private capital. Mobilisation requires a shift from the traditional model of lending and holding assets to maturity toward approaches that share, transfer or recycle risk to crowd in private investors at scale. This chapter examines how financial instruments, risk frameworks and delivery models shape the capacity of development banks and DFIs to mobilise private finance. It shows that most institutions remain concentrated in senior debt and originate-to-hold models, limiting their catalytic potential. While financial prudence and high credit ratings are essential, thy can reinforce conservative capital and risk policies that discourage the use of guarantees, equity, mezzanine finance or securitisation. Yet evidence suggests that substantial headroom exists for scaling mobilisation within prudent risk boundaries. The chapter highlights emerging reforms, such as originate-to-share models, portfolio risk transfers and securitisation initiatives that balance financial soundness with greater mobilisation impact. It concludes that embedding mobilisation into financial management requires adaptive capital and risk frameworks, modernised delivery models and strengthened capabilities – supported by clear shareholder direction – to make crowding-in private investment a systematic part of development banking.
Mobilising Private Capital for Growth, Resilience and Prosperity
Abstract
Mobilising private capital entails a shift in the function of development finance. Traditionally, official development finance (ODF) was deployed to directly cover financing gaps. Complementing this, private capital mobilisation uses ODF to unlock commercial sources of finance that address investment needs in developing countries. While development banks and development finance institutions (DFIs) are a conduit for ODF to mobilise finance from capital markets via their balance sheets, the level of mobilisation possible by this approach is defined and limited by those balance sheets. Direct mobilisation of private capital at scale and speed means enhancing access to and deployment of finance from commercial investors. This not only requires robust risk management, but also product innovation—such as originate-to-share or distribute business models, portfolio risk-sharing mechanisms and blended finance approaches that can crowd in investors at scale. This chapters examines how financial frameworks and management enable or constrain mobilisation at scale.
Scaling up private capital mobilisation hinges on development banks’ and DFIs’ use of financial instruments and associated policies with a mobilisation function. Historically, development banking focuses on senior debt financing – typically for sovereign lending, which is the lowest risk financial instrument but has limited mobilising impact unless structured to attract co-investment. Figure 4.1 and Table 4.1 illustrate the mobilisation functions of different financial instruments and approaches. In simplified terms, equity has a foundational catalytic role: by assuming first-loss risk and signalling investor confidence, it creates the condition for additional external investment. At the same time, equity is costlier and riskier than debt, which underscores the trade-offs involved in relying on it at scale.
In contrast, senior debt is essential to cover financing gaps but typically does not generate new investment opportunities on its own. While catalytic, risk-bearing instruments (e.g. junior equity, subordinated tranches) are essential for market creation, mobilisation can occur along the entire risk spectrum, from pari passu syndicated B-loans and simple co-financing (creating space for private co-lenders), to guarantees and first-loss structures. In many contexts, lower-risk instruments might drive larger volumes in the near term, even as development banks and DFIs build organisational capacity for more complex, higher-risk approaches. The Asian Development Bank (ADB) for example deploys loan syndications, parallel co-financing and guarantees alongside Public Private Partnership advisory services and thematic/sustainability-linked bonds to mobilise private capital.
Mapping of instruments and their functions, describing their mobilisation impact and use
Leveraging instruments, mobilisation mechanisms and stylised applications
Note: The figure illustrates a ‘ladder of mobilisation’, signalling that instruments can be sequenced from lower-risk/volume to higher-risk/market-creating uses. Most of the instruments can mobilise at both transaction and portfolio level.
Source: Authors’ elaboration.
The scale of developing countries’ investment needs underscores the urgency of aligning institutional factors with private capital mobilisation. Developing countries’ investment needs far exceed the balance sheet capacity of development banks and DFIs and therefore need to crowd-in private finance. The combined assets of major multilateral development banks (MDBs) (USD 2.0 trillion), bilateral development banks and DFIs (USD 1.4 trillion), and national and regional development banks of developing countries (USD 6.3 trillion) fall short of the scale of capital required, including the broader development needs of developing countries (Bhattacharya et al., 2024[1]); (Peking University and AFD, 2025[2]).
Between senior debt and equity lies a spectrum of subordinate or hybrid instruments, such as mezzanine finance or structured products, which combine elements of debt and equity to share risk and enhance creditworthiness. As one moves along the continuum, expected returns and risk absorption generally increase, with concessionality used to adjust pricing or absorb risk where needed. Insurance and guarantees provided by third parties serve as targeted risk management tools. These instruments can be tailored to cover specific risks, such as political, currency or credit risk and priced based on the actuarial profile. Collectively, these instruments serve different but complementary mobilisation functions and can be sequenced: development banks and DFIs might prioritise lower-risk, higher-volume approaches (e.g. pari passu syndication, guarantees) while building capacity and policy space for higher-risk, catalytic instruments, all within risk, pricing and capital policies aligned to investor expectation and development goals. In parallel, development banks and DFIs are increasingly supporting local capital market mobilisation. ADB for example engages in sustainable bond market development and technical assistance for local currency issuances. Similarly, donor-backed initiatives, such as the UK’s FSD Africa (FSDA), work to strengthen financial ecosystems and deepen capital markets across African countries. Such efforts can be critical to mobilise local private capital, for instance through dedicated funds like KfW’s African Local Currency Bond Fund or the Latin American Green Bond Fund.
A further opportunity to scale up private capital mobilisation lies in recycling operational assets. Development banks and DFIs hold substantial volumes of mature, income-generating assets on their balance sheets. Rather than retaining these assets to maturity, selling them on to financial investors could address the shortage of investable projects in developing countries. A lack of bankable, investable project pipelines is widely recognised as a barrier to more private investment in developing countries. Asset recycling can therefore serve a dual purpose: channelling private capital into low-risk, operational assets while freeing up institutional balance sheets to finance earlier-stage, higher-impact projects. Development banks and DFIs collectively manage over USD 23 trillion in assets (Chapter 1), highlighting the potential for asset recycling. Realising this potential will also require greater standardisation of loan documentation to lower transaction costs and facilitate portfolio sales to private investors. Recent proposals such as the IDB’s ReInvest+ initiative illustrate how this approach could be scaled: by purchasing existing high-quality loans from local financial institutions, enhancing them with political risk and foreign exchange insurance to obtain ratings, and reselling them to institutional investors, while requiring local banks to use the freed-up capital to issue new loans aligned with national development plans (IDB, 2025[3]). This creates as investment loop that channels institutional investor capital into developing country projects at scale, while reinforcing domestic lending capacity (IDB, 2025[3]).
Operational assets typically carry substantially lower risk profiles than pre-operational investments and align more closely with the risk-return expectations of commercial investors. Selling such assets can catalyse private investment at scale by providing a viable entry point for commercial capital and expanding market familiarity with developing-country assets. It also enables development banks and DFIs to reallocate capital toward earlier-stage or riskier projects, accelerating pipeline development. In contrast, retaining mature assets ties up scarce balance sheet capacity and limits the ability to engage institutional investors, who typically require assets to be aggregated, standardised and pooled into risk-diversified portfolios large enough to allow for scale, comparability and credit assessment (Gregory, 2024[4]). In response, there is growing interest across the development finance community in transitioning development banks and DFIs toward originate-to-distribute (selling all assets) or originate-to-share (retaining a portion of the assets) models – mirroring trends in commercial banking.1 These models allow institutions to finance projects up to operational maturity, then sell or syndicate exposures to crowd-in private capital while maintaining financial headroom for new investments.
Securitisation represents a complementary and underutilised tool to operationalise the shift toward balance sheet recycling and mobilising at scale. By pooling existing assets such as energy, transport, or infrastructure loans into investable securities, development banks and DFIs can transfer risk to private investors, create liquidity and expand market access to developing country assets. This approach allows institutions to free up capital for new transactions, while offering institutional investors access to diversified, risk-adjusted exposure. Despite this potential, securitisation remains limited in practice due to technical complexity, data constraints and internal capability gaps, highlighting the need for targeted institutional reforms to scale its deployment.
Importantly, risk-transfer need not raise portfolio risk: pari passu syndications and true-sale or synthetic securitisations can be structured to preserve reserve ratios and capital ratios while freeing headroom for new transactions. ADB for example has piloted securitisation and is exploring replication to distribute seasoned assets more broadly to private investors. For MDBs, securitisation can be particularly complex due to preferred creditor status and regulatory constraints on institutional investors (e.g. under Solvency II), which is why many MDBs pursue securitisation-like portfolio risk-transfer structures that achieve similar objectives. However, recent developments confirm growing appetite to operationalise such models. In June 2025, the IFC completed its first collateralised loan obligation, selling tranches of risk on a USD 500 million portfolio of emerging market loans. The transaction, which IFC leadership indicated will be repeated on a regular basis, is intended not only to stretch balance sheet capacity but also to attract institutional investors such as pension funds and insurers into emerging market assets. This example underscores both the feasibility and growing appetite for development banks to use securitisation-like structures to recycle seasoned assets and crowd in private capital at scale (Financial Times, 2025[5]).
Traditional use of financial instruments and prevailing financial policies and operating models of development banks and DFIs often misalign with the ambition to scale up private capital mobilisation. The nature of the constraint differs by institutional type: sovereign-focused development banks tend to prioritise long-term loans to governments; mixed-mandate MDBs often retain a bias toward sovereign portfolios despite having private-sector arms; and private DFIs remain concentrated in senior debt to firms, which limits their catalytic potential. The deployment of instruments to mobilise private capital remains limited in scope and volume. Most institutions continue to prioritise direct disbursements over designing transactions that create space for commercial financial investors. This model typically involves holding assets to maturity, generating long-term and predictable cash flows, but does little to build pipelines of investable projects or create market momentum. Rooted in the foundational mandates of development banks, these approaches reflect path dependency, but should not be seen as immutable.
In operational terms, development banking remains concentrated on loans. Over 90% of national development banks rely predominantly on long-term loan products according to a 2018 survey (World Bank, 2018[6]). These instruments, particularly senior debt, offer predictable returns and minimal risk exposure, but their potential to de-risk and mobilise private capital is limited.
Portfolio patterns reflect this reliance on sovereign and debt-heavy operations: most development banks’ commitments target sovereign operations, not private capital mobilisation. In 2022, sovereign operations represented the vast majority of commitments for many development banks, with private capital mobilisation largely ancillary (EIB, 2023[7]); (Convergence, 2023[8]). Figure 4.2 shows that this holds true across multilateral and bilateral development banks, with debt instruments consistently accounting for around 85-95% of their financial operations over 2016-2023, frequently used for sovereign operations (although not exclusively). DFIs, by contrast, deploy a more diversified instrument mix, with equity and shares in collective vehicles representing between 10% and 25% of their operations – reflecting their private sector focus with debt still the dominant instrument.
Financial prudence and credit ratings are closely linked to this concentration. Most multilateral and bilateral development banks raise financing on international capital markets, underpinned by high credit ratings that enable them to on-lend at favourable rates to clients who cannot obtain these rates themselves. Maintaining this model hinges on preserving low borrowing costs and long-term financial sustainability that, in turn, depends on maintaining credit ratings. Internal capital adequacy policies providing rules and asset-liability management (ALM) practices reinforce this stance, steering portfolios toward senior exposures. For MDBs, preferred creditor status reinforces the dominance of senior debt. The focus on credit ratings also applies to national development banks: according to the World Bank (2018[6]), 54% of national development banks in developing countries were required to obtain credit ratings. Obtaining the highest feasible rating is commonly a core goal across multilateral, bilateral and national institutions.
Share of financial instruments used by type of provider, 2016-2023, percentage of total
Note: Debt relief is excluded in the figure as it reflects transactions on existing debt rather than the deployment of financial instruments for new development finance.
Source: OECD (2025), OECD Data Explorer.
As a result, many institutions adopt a cautious stance towards instrument diversification. This caution is especially evident in sovereign lending, where development banks traditionally support governments through structured, long-term investment loans. These operations align with senior debt instruments, backed by sovereign fiscal capacity, and benefit from low default rates. The model has proven resilient and particularly beneficial in times of crises, from the global financial crisis in 2008 to the COVID-19 pandemic, when development banks provided counter-cyclical finance. However, this strength also represents a constraint: capital buffers and risk management systems designed to support sovereign lending are not easily repurposed to crowd-in private capital for riskier, market-based operations.
Even where mobilisation instruments are used, the risk appetite and policy constraints of development banks and DFIs bias deployment toward lower-risk approaches. Syndicated loans, where development banks and DFIs lead and co-finance with other lenders, are the most significant source of mobilisation growth through MDBs. In relative terms, their share in mobilising private capital for development outcomes in developing countries increased from 20% in 2016 to 35% in 2023. While syndication is lower-risk and might have limited transformational impact on its own (including as it often remains constrained to senior debt structures), it can serve as a near-term driver of volume and an on-ramp to deeper private participation (e.g. through repeat lenders, follow-on transactions, securitisation of seasoned portfolios). Equity investments, which are more catalytic, saw a relative decline for MDBs over 2016-2023. Private finance mobilised through guarantees decreased in relative terms across bilateral and multilateral development banks as well as DFIs.
Private finance volume mobilised by leveraging instrument and type of provider, 2016-2023. Top figure: In constant 2023 USD billion; bottom figure as share of total, in percent.
Note: The figure shows amounts mobilised from the private sector by official development finance interventions. Mobilisation captures the private finance that can be causally linked to an official intervention, measured at the point where private investment is committed.
Source: Based on OECD (2025), CRS - Private: Mobilised private finance for development, http://data-explorer.oecd.org/s/22r.
Bilateral development banks mobilised the majority of private finance through credit lines (on average 63% of total private finance mobilised over the period of 2016-2023), with mobilisation through syndicated loans increasing in relative terms to 10% in 2023 (Figure 4.3). While this reliance on credit lines reflects limited in-house capacity for more complex instruments, it can also serve to balance portfolios and provide stable returns alongside riskier equity and subordinated debt investments. Interestingly, private finance mobilisation through direct investment in companies and special purpose vehicles (SPVs) increased for development banks to 18% in 2023.
The instrument mix of bilateral DFIs differs markedly from that of development banks, reflecting their direct engagement with private sector clients. Guarantees were the dominant leveraging instrument from 2016 to 2019 before sharply declining in 2021 and only partially recovering thereafter (Figure 4.4). This volatility – and the absence of a sustained upward trajectory – points to a lack of systemic deployment of an instrument that evidence suggests is effective in mobilising private finance at scale. Direct investment in companies and SPVs grew steadily since 2016, becoming the largest leveraging instrument by 2023. Shares in CIVs followed a similar upward trend. Credit lines, while growing significantly from a low base remain a comparatively modest leveraging instrument by DFIs. Syndicated loans stayed largely flat throughout the period, despite their growing role in MDB mobilisation.
Private finance mobilised by bilateral DFIs by leveraging instrument, 2016-2023, in constant 2023 USD billion
Note: The figure shows amounts mobilised from the private sector by official development finance interventions. Mobilisation captures the private finance that can be causally linked to an official intervention, measured at the point where private investment is committed.
Source: Based on OECD (2025), CRS - Private: Mobilised private finance for development, http://data-explorer.oecd.org/s/22r.
These patterns reveal deeper structural challenges to private capital mobilisation. Data from the Global Emerging Markets Risk Database (GEMs) consortium indicates that private capital mobilisation for development is concentrated in countries with lower market credit risk perception gaps, i.e. where market pricing aligns more closely with historical risk fundamentals (Figure 4.5 and Annex C). In contrast, countries where market-perceived risk significantly exceeds credit performance receive far less mobilisation. These findings imply that distorted or inflated perceptions of credit risk might constrain private capital mobilisation. They underscore the need for tools and investment frameworks that enable development banks and DFIs to take a more calibrated, evidence-based view of risk, rather than relying solely on market signals that might systematically overprice risk in some developing countries, and to reflect this in internal risk appetite statements, pricing policies and deployment of risk-sharing instruments.
The concentration of mobilisation in markets with low credit risk perception gaps might point to a missed opportunity. The perception gap between implied market risk and GEMs data reveals that ODF concentrates in markets where performance is close to market risk perception. ODF is deployed considerably less in markets where ODF performance is stronger than implied by markets. Moreover, risk perceptions are higher in these markets in general. This suggests that development banks and DFIs are underutilising one of their key comparative advantages: operating in markets where they outperform market perception of risk. In contexts where credit outcomes have been more favourable than market perceptions suggest, there is clear scope for development finance to expand operations, crowd-in private capital and achieve greater additionality. The relative under-allocation of ODF in these higher-gap markets reflects institutional risk aversion and represents a missed opportunity to unlock investment potential and address investment needs where development finance – via development banks and DFIs – is particularly well placed to do so.
Cumulative private finance mobilised by credit risk perception gap in the market, 2016-2023, in constant 2023 USD billion
Source: Authors’ estimate based on Damodaran (2025[9]) and GEMs (2024[10]).
In addition to market-related barriers, some development banks and DFIs face structural regulatory constraints. As regulated financial institutions, bilateral DFIs for example are subject to national banking regulation and supervision, including capital adequacy rules aligned with Basel III, which can limit their flexibility in deploying risk-sharing instruments, guarantees or securitisation. While these rules are designed to safeguard financial stability, they may also restrict the ability of DFIs to scale mobilisation tools that rely on risk transfer or off-balance-sheet structures. Addressing such constraints requires dialogue with regulators and shareholders to ensure prudential requirements remain compatible with the mobilisation imperative. Similar challenges can also affect national development banks in developing countries, which are typically supervised under domestic banking regulation; in such cases, limited regulatory flexibility and shallow local capital markets may further constrain the use of innovative mobilisation instruments.
Scaling up private capital mobilisation while preserving financial robustness requires institutions to operate at the efficient risk frontier for their targeted credit profile. However, not all mobilisation instruments increase institutional risk: pari passu syndication, unfunded guarantees with robust risk-sharing and risk-transfer of seasoned assets can expand mobilisation within existing ratings and risk parameters. However, mobilisation instruments and approaches can carry higher risk than conventional senior debt, often involving subordinate positions or first-loss exposures. As such, a growing reliance on these instruments could affect institutions’ credit ratings and increase their cost of capital. For this reason, institutions like British International Investment (BII), which invests predominantly through equity, rely solely only their own capital rather than leveraging themselves on capital markets.
Growing evidence suggests that many institutions can take further steps to support private capital mobilisation without undermining their financial health. Recent studies point to substantial untapped headroom in existing capital structures. Fitch Ratings (2024[11]) estimates that twelve major MDBs could expand their lending by USD 480 billion, equivalent to 37% of current exposure, without risking a downgrade. The three largest MDBs by assets – the International Bank for Reconstruction and Development (IBRD), the ADB and the European Investment Bank (EIB) – have the most room to expand lending under this assessment. While these estimates refer to regular lending capacity, they imply the existence of a capital buffer that could, at least in part, be redeployed toward more catalytic mobilisation activities. Similarly, analysis finds that IBRD alone could increase its lending by over 70% of net outstanding loans, and the International Development Association (IDA) by more than 200%, before reaching thresholds that would lead to a downgrade by Moody’s and S&P Global respectively (Risk Control, 2023[12]). These findings underscore that increased mobilisation is not inherently incompatible with financial stability.
Realising this potential means distinguishing between innovations that materially raise portfolio risk and those that primarily demand change. Understanding the efficient risk frontier – the level of mobilisation achievable within a given risk tolerance – enables better capital allocation and clearer guidance for treasury, risk and business lines. Some changes might be institutionally challenging without carrying higher financial risk. For instance, syndicating senior loans to crowd-in commercial lenders might be more administratively complex than senior debt transactions, but does not necessarily increase financial risk. In fact, pari passu arrangements could reduce concentration risk and improve risk-sharing.
A shift from the traditional originate-to-hold model to an originate-to-share approach does not alter the underlying asset risk, but necessitates enhanced risk management capabilities. This business model repositions development banks and DFIs as originators and facilitators of investment rather than principal lenders, with revenue derived from origination and servicing fees. Successful implementation requires distribution policies, investor-relations capacity, risk-retention guidelines, fee frameworks, servicing infrastructure and other functions not typically embedded in development banks and DFIs. It also demands stronger internal collaboration across investment, risk, syndication, legal and treasury functions, and alignment of incentives to support mobilisation objectives. Strengthening these capabilities is essential to transitioning mobilisation, catalysation and co-creation from a side activity to a core institutional function. In practice, success will also hinge on keeping transaction costs manageable and designing fee structure that ensure the model’s financial sustainability. Recent portfolio risk-transfer steps, such as ADB’s framework agreement with global insurers to share credit risk on sustainable infrastructure exposures, likewise free up capacity while embedding distribution discipline. Several development banks, including BII and the European Bank for Reconstruction and Development (EBRD), are transforming their syndication desks into broader mobilisation teams to support this shift.
Latent financial capacity provides development banks and DFIs with an opportunity to scale up the use of mobilisation instruments within prudent, well-managed risk frameworks. This potential is not merely theoretical. IDB Invest adopted an originate-to-share model in 2024 to increase its private capital mobilisation efforts and impacts (IDB Invest, 2024[13]). This shift was backed by a decision of IDB governors in the same year to provide IDB Invest with a capital increase of USD 3.5 billion, reinforcing the new business model and its focus on mobilising private capital (IDB, 2024[14]). Despite the shift, Fitch Ratings reaffirmed IDB Invest’s AAA rating, citing its excellent capitalisation and robust risk management practices (Fitch Ratings, 2025[15]). While Fitch anticipates increased activity in riskier projects and a slight mid-term rise in non-performing loans, it expects these to remain within manageable thresholds (Fitch Ratings, 2025). As part of its updated model, IDB Invest also established the Scaling4Impact securitisation mechanism to recycle up to USD 1 billion in assets and free up balance sheet space to finance new transactions.
Other institutions pursue innovative approaches that combine instrument innovation with delivery model reform. The African Development Bank’s (AfDB’s) Room2Run initiative launched in partnership with private and philanthropic actors uses synthetic securitisation to transfer credit risk on USD 1 billion of private loans, unlocking new lending capacity. A second phase of the initiative extended this approach to USD 2 billion in sovereign loans across 11 African countries. These efforts demonstrate how strategic use of risk transfer mechanisms can amplify capital deployment without jeopardising institutional creditworthiness. They also reflect growing recognition that scaling private finance mobilisation requires new tools and new business models. The Development Bank of Southern Africa (DBSA) shifted to a catalysation-focused model as early as 2014 (Box 2.1 in Chapter 2).
Together, these approaches underscore a portfolio view of mobilisation: combining lower-risk, high-volume instruments that scale quickly with selective, higher-risk catalytic interventions that build markets and demonstrate viability. The balance between these will vary by country context, sector and institutional mandate.
The evidence outlined above has three implications for development banks’ and DFIs’ institutional factors. First, over-reliance on senior debt and originate-to-hold models suppresses mobilisation potential, even when lower-risk instruments could mobilise more within current ratings and when targeted catalytic tools are needed to create markets. Evidence is mounting that development banks and DFIs can deploy more catalytic instruments without undermining financial integrity. While financial sustainability remains paramount, institutions can do more to unlock their mobilisation potential within prudent risk frameworks.
Second, scaling requires broader use of mobilisation instruments. Transitioning to more catalytic mobilisation requires a broader and more deliberate use of financial instruments. Realising this potential will require institutions to define and efficiently manage their risk-bearing capacity at a given level of risk tolerance, codified through capital adequacy policies, pricing policies and risk transfer rules. This involves conducting capital adequacy assessments, diversifying portfolios and using stress-testing scenarios to determine where and how much additional risk can be taken on. Embedding risk transfer mechanisms such as guarantees or securitisation into institutional policy frameworks and translating these into effective instruments will be critical. For example, ADB’s created an innovative finance facility that uses a guarantee-based approach to release capital lending while crowing in private finance in the Asia-Pacific region. In practical terms, this includes scaling syndications, unfunded guarantees, insurance and senior securitisation tranches alongside mezzanine and first-loss when justified by impact and market needs. Equally important are enhanced risk monitoring systems that can track portfolio performance across diverse sectors, geographies and transaction types. It is also essential to clarify ex-ante who bears losses if risks materialise, to avoid unintended contingent liabilities for shareholder governments.
New business or delivery models based on selling or sharing financial assets can complement and scale up mobilisation efforts and unlock private finance. Examples include B-loan distribution, portfolio risk-transfer and securitisation, which complement catalytic instruments and provide practical pathways to scale mobilisation efforts. Blended finance can play an important role in such innovations by absorbing specific risks, demonstrating new structures and attracting first-time private participants. Moving beyond the originate-to-hold model to originate-to-share/distribute approaches enables development banks and DFIs to recycle capital, attract diverse private investors and accelerate pipeline development without requiring new capital injections. Implementing such models requires dedicated distribution policies to guide risk retention, syndication practices, pricing and servicing responsibilities when exposures are shared with private investors. However, this transition requires targeted reform. Shareholders must provide clear mandates and authorise greater use of risk bearing instruments, alongside adjustments to risk appetite statements and the introduction of distribution policies. They must also signal that private capital mobilisation is a strategic objective on par with development impact and financial prudence, including support for shifting toward originate-to-share/distribute models that can free up balance sheets for greater mobilisation.
Third, capabilities and governance of development banks and DFIs must adapt to support distribution-oriented models. These insights point to scope for enhanced mobilisation that does not compromise the financial stability of institutions. Rather, it is a question of managing risks strategically and transparently while maintaining institutional focus. With clear shareholder mandates and backing, robust governance and modernised internal systems, development banks and DFIs have substantial potential to scale up private capital mobilisation and maintain financial strength.
This transition will demand using skills that are underdeveloped across much of the development banking landscape. Development banks and DFIs will need to build or deepen their capabilities to:
Structure complex, blended and risk-sharing transactions (e.g. guarantees, and subordinated and junior equity positions)
Structure pari passu syndications and A/B-loan distribution, including documentation, investor onboarding and secondary market engagement
Understand the mandates and return expectations of institutional and commercial investors
Develop bankable projects in challenging or nascent markets and multiply the development of bankable projects in existing markets
Navigate legal, reputational, financial and fiduciary risks associated with layered financing
Build and manage partnerships across the private investment ecosystem
Operate with greater speed and responsiveness to match private sector timelines
These are not merely technical aspects, but represent strategic shifts in institutional orientation and purpose that require action on two levels. First, shareholder governments will be critical for providing the political authorisation, explicit strategy and key performance indicators (KPI) signals to support increased mobilisation. Without this mandate, development banks and DFIs are unlikely to realign their financing frameworks and management, and their operational systems. Second, development banks and DFIs must adapt, updating their internal capabilities, aligning staff incentives with mobilisation outcomes, and modernising their business models and delivery systems.
In short, mobilising private finance is not simply a matter of deploying more capital, but of deploying capital through different financial instruments and approaches. This is particularly true in the current marcoeconomic environment and increasing pressures on scarce development finance. It requires development banks and DFIs to occupy catalytic positions within transactions to create conditions under which others can invest. The challenge is institutional as much as financial: embedding a culture and architecture of private capital mobilisation through policies, governance and capabilities so it becomes a core feature of how development banks and DFIs deliver impact. Chapter 5 explores how institutional systems and culture must evolve to overcome barriers to realising mobilisation potential. Success will come from using the full instrument set and sequencing them to country and market conditions.
References
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← 1. These models require complementary distribution policies, i.e. internal rules that govern how exposures are syndicated or sold to private investors, including minimum risk-retention levels, eligible counterparties, pricing and fee frameworks, and servicing policies.