NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, October 11, 2018

Bipartisan legislation signed into law today looks to spur up to $100 billion in new private sector investment in emerging markets around the world.

Using blended finance, the Federal government will look to attract impact investors and other private capital to projects that advance development and diplomatic goals.

Development finance is an increasingly important tool embraced by governments around the world, using loans, guarantees and other financial tools to supplement more traditional forms of direct foreign aid. Impact investors seek a range of risk-adjusted financial returns while also pursuing measurable, positive social and environmental outcomes. Development finance institutions and impact investors often work hand-in-hand on projects and shared objectives.

With the President’s signature of the Better Utilization of Investments Leading to Development Act (“the BUILD Act”), the United States is preparing to enter a new era of development finance. Since its creation in 1971, the Overseas Private Investment Corporation (“OPIC”) has been the United States’ development finance institution, investing in more than 160 countries and consistently generating a financial return for tax payers while supporting projects that produce economic opportunity and advance strategic objectives.

The BUILD Act looks to continue that strong institutional track record in creating a new agency, the U.S. International Development Finance Corporation (“IDFC”), which will take over the work of OPIC and fold in certain offices of the U.S. Agency for International Development (“USAID”). The IDFC will be equipped with expanded authority to engage private investors, to operate in least developed countries and to collaborate with American allies around the world.

U.S. Impact Investing Alliance Executive Director Fran Seegull made the following statement:

“The U.S. Impact Investing Alliance is encouraged by the continued commitment leaders in Washington have shown to leveraging private capital for public good. The BUILD Act was spearheaded by a bipartisan coalition of lawmakers, policy experts and development practitioners, and as efforts begin to establish the new agency that same broad coalition must remain deeply engaged.

“Impact investors will be important partners for the new IDFC, with a shared commitment to development impact and deep expertise deploying capital in challenging local contexts around the world. IDFC will play a central role in accelerating the global impact investing movement, unlocking more capital for impact by catalyzing new investors to align their portfolios with global development goals.”

Quick facts about the U.S. International Development Finance Corporation (IDFC):

• The IDFC is a development institution with a mandate to catalyze private sector capital to flow to projects and enterprises that will measurably improve social and economic conditions in communities around the world.
• The BUILD Act creates a new position of Chief Development Officer to oversee the agency’s commitment to labor, environmental and rule of law standards. The Chief Development Officer will also oversee private sector engagement and work to build partnerships with USAID, State Department and other development institutions.
• The IDFC will also have a new Development Advisory Council composed of outside experts and practitioners to advise on the institution’s impact objectives and outcomes.
• The IDFC will have new tools at its disposal, such as the ability to make equity investments or investments denominated in local currencies, which will create a nimbler institution better able to partner with private market actors and American allies.
• The IDFC will crowd-in private investment in developing countries by focusing on projects and enterprises that would not be viable without IDFC’s participation. Additional resources to perform feasibility studies and provide technical assistance support this mandate.
• The IDFC has a mandate to create jobs in the United States and half of the American companies it partners with on investment opportunities will be small businesses including woman and minority owned businesses.

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