The traditional development finance model is “demand-led”. Most development finance institutions (DFIs) rely on finding businesses that not only meet our impact and financial criteria but also seek investment.
But there is another option, which does not get enough attention. British International Investment is a pioneer of going beyond the “demand-led” model, thanks to our flexible organisational form and supportive shareholder.
Recent examples include Gridworks, a company we launched in 2019 with the aim of developing and investing in financially sustainable electricity networks to improve the quality and availability of power in Africa. Another example is MedAccess, a social-finance company we set up in 2017 to help improve access to life-changing medical supplies at an affordable price.
Our experience and interest in this area is why we were pleased to support research by the think-tank ODI Global, DFI sponsorship of new platforms and ventures: how and why.
ODI’s research finds that when DFIs encounter a development need, but also a lack of suitable private enterprises seeking capital to meet that need, there are various ways in which they can take a more proactive approach to creating investment opportunities. These range from starting a new business themselves to creating joint-ventures with established businesses to push them in more developmental directions. The report features 12 case studies: Abler Nordic, AFIP, AgDevCo, APP, Arise, AWID, Ayana, DP World, GIP, Globeleq, Gridworks and MedAccess.
Sponsoring new ventures would be a significant departure from business as usual for most DFIs. ODI explore what it involves, including high risk tolerance and the ability to put more staff at work on transactions for far longer than normal. But it is worth the effort – ODI finds that these ventures are well on the way to meeting urgent development needs and have already mobilised around $4 billion of capital from DFIs and $3 billion from private investors. Many of these ventures are still in their early stages, so there is more to come.
