1

There are many strategies to have impact for institutional investors in developing markets – some examples

Source: Dalberg Global Development Advisors, Innovative Financing for Development, 2014

What is innovative? How does it support development?

New

Product New

Market

New Participant

s

Mobilize Resource

s

Financial Intermediatio

n

Deliver Resourc

es Securities and Derivatives Thematic Bonds X X X Guarantees X X X Thematic Loans X X

Microfinance Investment Funds X X X

Other Investment Funds X X X Other Derivative Products X X X X Results-based Financing

Advanced market commitments X X X

Awards and Prizes X X Development Impact Bonds X X

Performance-based contracts X X

Debt-swaps and buy-downs X X Voluntary contributions Carbon Auctions (voluntary) X X X X Consumer Purchases X X

2

Taking a conservative approach, innovative financing has mobilized $93 billion since 2000

Distribution of innovative financing mechanisms, by type Percent of total mobilized (n=278)

Note: Data based on nominal values of dollars at risk. Amount mobilized refers to the total size of the instrument, not the subsidy or amount disbursed by donors. For example, GHIF mobilized $108 million, but SIDA and the Foundation contributions will depend on the funds’ performance. Source: Dalberg Global Development Advisors, Innovative Financing for Development, 2014

•  Innovative financing is not financial innovation: bonds and guarantees are established products.

•  In fact, one long-established development guarantee program – the Multilateral Investment Guarantee Agency– accounts for 26% of the total amount mobilized.

•  Bonds and guarantees make up 64% of the amount mobilized since 2000.

•  Taxes make up only 2.6%: the key tax (FTT) is recent and so far restricted to France.

Securities and Derivatives Results-based mechanisms Voluntary Contributions Compulsory Charges

3

Annual amount mobilized, 2001-2012 USD millions (n=278)

Innovative financing has grown three-fold in the last decade to roughly $11 billion per year (2012)

Note: Annual mobilized data was not available for 141 instruments. For these instruments, we assumed that the entire amount mobilized was mobilized in the launch year. Source: Dalberg Global Development Advisors, Innovative Financing for Development, 2014

Awards and prizes

2010

2009

AMC

Investment funds

2011

2012

Taxes

Performance-based contracts

2006

2004

Loans Microfinance Funds

2007

2001

Guarantees

Bonds

Consumer Donations

2003

Other derivative products

2005

Debt-swaps and buy-downs

2008

Auctions

2002

4

There is a growing number of opportunities to invest, but it is still early days for some of the more innovative blended models

Landscape of Innovative Financing Mechanisms, 2000-2013

Source: Dalberg Global Development Advisors, Innovative Financing for Development, 2014; Dalberg Analysis.

•  Proven models, such as guarantees and bonds, are financially efficient mechanisms that have clear standards for assessing risk and established track records. Many donors interviewed expressed interest in guarantees, which have high leverage ratios, but expressed reluctance to make long-term commitments through bonds.

•  Opportunities for replications, such as performance-based contracts, enjoy broad interest among donors, but have limited performance history to attract private investors.

•  Newer ideas, such as AMCs and DIBs, are being widely discussed but have few concrete commitments. They will require substantial donor support before they can scale beyond the pilot stage.

5

•  Many potential sources of capital and expertise remain untapped (e.g., insurers, domestic companies, and pension funds).

•  New innovative financing mechanisms often fail to account for the existing business models, incentives, and constraints of investors and private business (e.g., commercial and investment banks, insurance companies, and FX brokers).

Increase the depth of the capital pool

Promote the right kind of

innovation

Streamline transaction costs

Build intermediaries who can then

build the market

•  The market is still very conservative; 2/3 of initiatives in the Innovative Financing Initiative database are conventional bonds and guarantees.

•  Innovative energy is often focused on designing bespoke pilots, rather than on how models can be scaled and replicated.

•  Transaction costs are often high, dragging out timelines for years and dissipating momentum.

•  The cost of gathering on-the-ground or historical performance data means investors face uncertain/complex risk profiles and demand high returns.

•  Many missed opportunities because few players have the context and credibility to “translate between” public finance institutions, private players, and local governments.

•  Those that do exist often focus on small set of actors or specific issues.

What are the major opportunities that we see in the market today?

Source: Dalberg Global Development Advisors, Innovative Financing for Development, 2014; Dalberg analysis.