Reforming for private sector development

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An interesting new report by the World Economic Forum, The Untapped Potential of Development Finance Institutions to Catalyse Private Investment. I don’t agree with all of it, but a commendable paper for its comprehensiveness, detail and ambitious reform proposals to support private sector development. In contrast to Einhorn’s recommendations, the authors claim that it would be wrong for the World Bank Group to withdraw from its middle-income lending with the current financing gap lingering. They instead suggest a redefinition of goals and refocus of funds:

Institutions that traditionally have been lenders to sovereigns must transform themselves also into catalysts, mediators and facilitators at the sovereign, sub-sovereign and regional levels. They must see themselves fundamentally as providing bridges to private sector financing, and this should become their primary operational ethos in all but the lowest income countries…

In the World Bank Group, capital should be shifted to the complex of activities managed mainly by the International Finance Corporation (IFC). A significant shift should occur immediately to signal to Bank management and staff the depth of commitment of shareholder governments to private sector development and to encourage a commensurate shift in staff resources and management attention.

They continue:

The IFC’s for-profit culture and the role of its board should be re-examined and reformed. As the principal arm of the World Bank Group responsible for stimulating private investment in poor countries, the IFC is the best equipped DFI for carrying out the agenda outlined in this report. But while it performs many of the functions stressed in this report quite well (if not at sufficient scale), there was a widespread impression among expert project participants that it has an insufficient appetite for risk given its mission as a development institution.

This undue conservatism is manifested in often complicated and timeconsuming deal approval procedures that decrease private investor interest in its products. It sometimes fosters the impression that the IFC is competing with, rather than enabling, private banks and funds by assuming some of the more difficult risks these.

Loud suggestions and much food for thought. Read the entire thing and let us know what you think.

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