The Future of Development Finance:
5 event takeaways

1. Political will and better solutions needed to take advantage of new financing tools

There is still a big gap between what’s happening in development finance, impact investing, and the mainstream capital markets. In order to move mainstream capital markets toward impact,  these worlds need to be brought together, said Lorenzo Bernasconi, managing director of innovative finance at The Rockefeller Foundation, as he kicked off the first panel discussion on the potential of new financing tools to bridge the Sustainable Development Goal funding gap.

Bernasconi also highlighted the need to develop more fit-for-purpose financing solutions. “Because the capital markets have not been designed to address the types of challenges that we have today, we need to think about new ways in which we can leverage investment and finance to ... effectively drive investment at scale,” he said.

Bernasconi stressed the importance of finding ways for more mainstream capital to flow towards areas of need. Blended finance, he said, helps to address those issues — whether on the risk and return side or on the impact side of the equation.

“We need to continue innovating, and I think there’s room for more standardization and for more institution building,” he said. “I don’t think we’ve even started to scratch the surface of what is possible.”

Bernasconi also addressed the lack of political will to bridge the financing gap and that more incentives are necessary. 

“There’s an enormous amount of opportunities and innovations that could happen on the policy front to ensure that we have the right kinds of incentives to drive in the capital at scale,” he said.

Tarun Mehta, partner at Indian venture capital firm The Aavishkaar Group, said the success of new financing tools depends on their ability to crowd in more patient capital.

“We need more patient capital,” he said. “Because yes, we can exit earlier, but that would be to the detriment of the company in terms of [a] monetizing event. They need some time to grow.”

However, the appetite for this type of investing is definitely there, said John Morris, founding partner and CEO at 17 Asset Management.

“There’s not a problem of capital looking to invest in the SDGs,” he said. “It’s going back to the design process and in getting investors into the discussion on how that process should look like.”

3. The solutions and tools are there, but we need to create more bankable deals

Philippe Valahu, CEO of the Private Infrastructure Development Group, opened a panel on the role of the private sector in mobilizing more capital for the SDGs by saying he doesn’t find the use of the term “billions to trillions” helpful.

“We know that the money’s there, and we know what it takes to move [it], but where are the bankable deals?” he asked.

“Anyone talking about the billions to trillions agenda seem to be focused exclusively on cross-border financing,” said Valahu, noting that it is equally important to talk about domestic mobilization as a means to deepening local capital markets.

Chris Clubb, executive director of the blended finance platform Convergence, said he considers the billions to trillions tag line to be aspirational but the real question is: Why aren’t we moving in this direction?

“The money is there, and the investment needs are there, but we need to alter the risk return to make it more conducive to investors to invest in places that they’re not initially keen to invest,” he said.

Deniz Harut, executive director of Standard Chartered’s sustainable finance team, agreed that the solutions exist, adding that partnerships will need to play a crucial role to scale these new tools.

5. Patient vehicles that can support SMEs are necessary to scale impact

Small- and medium-sized enterprises are the vehicles to get the jobs in South Asia and sub-Saharan Africa needed to achieve the SDGs, said Alix Peterson Zwane, CEO of the Global Innovation Fund.

“We need patient vehicles that don’t need to rush for [internal rate of return] and rush for the exit, that can see those companies along their journey until they’re ready to engage with DFIs,” she said. “We’ve just got gaps then in our financial ecosystem.”

Another priority, according to Peterson Zwane, is to “figure out local currency working capital and figure out how to have partnerships” between DFIs and local banks so that lending can be done in local currencies.

“Ideas that used to be confined to development finance wonks like myself are now really becoming mainstream,” said Haje Schütte, head of the development finance division at the Organization for Economic Cooperation and Development.

“That’s very positive, but going forward, we need a much better knowledge of what it actually takes,” he added. “We need much more learning from practitioners, developing the right policies, having the right kind of data and the right kinds of partnerships if we are to succeed.”