Monday
November 5
2018

Scott Anderson

Chopping Block to Starting Block: How OPIC (Now IDFC) is Writing the Next Chapter in U.S. Development Finance

The Overseas Private Investment Corp. just survived a near death experience. The agency was among the proposed cuts when the Trump administration came into power and began budget negotiations. But earlier this month, President Donald Trump signed the Better Utilization of Investments Leading to Development (BUILD) Act. The legislation, which was a unicorn of bipartisanship, essentially ends OPIC as we’ve known it. But this ending is actually a new beginning, doubling the agency’s budget to $60 billion and giving it several new types of financing authority that many have clamored for, regardless of political stripe. It also gives the agency a new name, the U.S. International Development Finance Corporation (IDFC).

While there have been several theories about what’s motivating this boost in funding – including concerns about China’s dominance in Africa – the BUILD Act and its implications for entrepreneurship had many buzzing at the recent Social Capital Markets (SOCAP) conference.

David Bohigian was tapped by President Trump as the Executive Vice President of OPIC, and tasked with navigating its transition to the IDFC. He was a speaker at SOCAP18 last month, where I caught up with him on the sidelines. (Our discussion has been edited for clarity and length).

 

Scott Anderson: You’ve been executive director of OPIC for a little over a year. What mindset did you bring to the position when you first started, in terms of where you wanted to see the organization go, and how are you implementing that vision?

David Bohigian: This time last year, OPIC was on the chopping block of the budget. It’s truly been a remarkable turnaround going from being cut in the budget to now the Build Act passing, which heralded a new International Development Finance Corporation which is going to double the potential portfolio size for development finance in the United States, provide equity authority, provide technical assistance, and provide interoperability through allies and throughout government to be truly a world-class development finance institution.

And you’re seeing OPIC’s continual innovation, being able to catalyze hundreds of millions of dollars in new products, to solving these challenges. This morning I sat down with Kiva and the Skoll Foundation, which is a wonderful example of blended finance. For the first time we’re reaching a retail audience of more than 100,000 different people who are taking loans on. And because Skoll was able to provide some capital on top of our debt product, we’re reaching an audience we never have with that. I think that’s just one example of so many different innovations you’re seeing over the last year that Ray (Ray Washburn, OPIC President and CEO) and I have been able to accomplish.

 

SA: Are you finding that organizations are more interested in working with OPIC in these sorts of blended finance vehicles? If so, what’s driving it?

DB: I think what’s primarily driving it is our culture of innovation. We truly have developed new products and new asset classes we’ve never had before. Another example is that yesterday I announced our first investment in venture capital. We’ve been in private equity for the last several years, we have a $3.5 billion portfolio with 40 funds, but we hadn’t been in venture capital. And the reason was with a debt product you’re taking on more risk, but no more reward, but the impact that entrepreneurs can drive in society is worth it. So we’re invested in Iron Pillar, which is a later-stage venture capital firm based in India and the Bay Area, and they are, in and of themselves, helping entrepreneurs. One of their portfolio companies has over 10,000 small businesses that they’re giving online presences for the first time – everything from souvenir stores to (businesses) allowing people to take camel tours throughout India – online for the first time. We’ve also been able to have different blended finance vehicles that we’ll be announcing over the next few months that just didn’t exist.

So I think that innovation has continued to build around OPIC. And then the major change over the next year is going to be with the new Development Finance Corporation – being able to have both equity authority as well as technical assistance – those two are going to be more catalytic than we’ve seen before. One of the problems we’ve had is working with private equity with traditional limited partners, they didn’t like the debt product that we had – we’ve seen people rushing to the door.

 

SA: Why didn’t they like the debt product? What was the limitation?

DB: Because as you know in private equity, every limited partner has a similar limited partnership agreement that’s equity. And the problem was, in many respects, to (include) a debt product – it’s just an apple among oranges in a partnership. So the (investee) team needs to review a different type of document. It also had a historical issue … after the downturn in the economy ten years ago, OPIC was getting repaid on its debt while equity holders weren’t, and that led to a difficult operating environment for many. So I think being able to be directly aligned with other investors and private equity funds… is going to be a huge step in development finance in the United States and emerging markets.

 

SA: The Build Act has been a huge topic at this year’s SOCAP. What is the biggest boost it gives to OPIC?

DB: The Overseas Private Investment Corporation is 100 percent focused overseas. We are focused in emerging markets, and we’re focused on the hardest places in the world to do business and catalyze capital to those development goals. But we’ve done that without modern finance tools. OPIC was conceived in 1971 when the financial landscape was far, far different. So when we move to the development finance corporation next year it will have tools many of our counterparts in other development finance institutions have had – primarily equity. We’ll also have technical assistance, so we can go to a country or company and say, ‘Here’s how we think we can advance development goals.’ Next we’ll be able to take a ‘whole of government’ approach, working more closely with our colleagues at USAID. We’ll be able to have a chief development officer who has reach into USAID as well as their development credit authority, which has loan guarantees similar to what OPIC’s been doing in the past, but has far greater reach for USAID’s missions overseas. So I think those are some of the key tools that the new DFC is going to have, that OPIC hasn’t had, and it’s been welcomed by all the hearts and minds here at SOCAP.

One of the big authorities we’ve also gained is that today we have a $23 billion portfolio, we’ve got a cap on that portfolio of $29 billion. The BUILD Act now authorizes the new development finance corporation to invest up to $60 billion. So that organization will have an expanded agreement across (financial) tools, as well as the mandate overall to do more deals in business development like we’ve seen here at SOCAP, which will continue to drive emerging markets.

 

SA: Let’s talk about 2X. Break that program down for us: How does it work?

DB: This time last year 2X was just an idea. 2X is OPIC’s Women’s Initiative, which seeks to invest in women-owned, women-managed and women-empowered businesses, Over the last year it’s gone on to catalyze more than a billion dollars in capital to emerging markets to empower women. It’s also been able to be a global player by taking the G7 countries in Charlevoix, Canada earlier this year and having all of them subscribe to the 2X Challenge, so each one of those countries is putting money toward women’s empowerment. So it’s just been an amazing entrepreneurial story, an innovation story about literally not having a women’s empowerment theme within OPIC last year to real global leadership, and we expect it’s going to be catalyzing billions of dollars to empower women.

 

SA: I was at an event this week where Kathryn Kaufman, Managing Director for Global Women’s Issues who leads 2X Women, was speaking. She commented on how OPIC wants to see more women’s representation on boards or in the senior leadership of companies in which it invests. But then she specifically juxtaposed that policy with the fact that OPIC’s board has only one female member. Is there a cultural shift that’s happening within OPIC in terms of the make-up of the board, and improving the gender balance?

DB: Throughout OPIC we’re starting to ask all of these questions. Katie Kaufman just last week put together a series of 10 hours of training for people to think about gender lens investing as part of the investing process, so it’s not merely an add-on as you go through the process, but is deeply ingrained as environmental and social policy – and that applies within OPIC specifically and to all the investees.

 

SA: To wrap up, how should social entrepreneurs and others approach OPIC, how should they get in touch with the agency, and how should they let you know about deals?

DB: We’ve got 275 people at OPIC who are dedicated to advancing development goals through transactions. Everything from our small and medium-sized enterprise group, to our project equity group, to our project finance group. Anyone can apply to OPIC through writing us at OPIC.gov, and we have a quarterly call for private equity funds, we have a continual flow of entrepreneurs we’ve met here and at other business (conference) opportunities. It’s really demand driven, so we want entrepreneurs to come to us when they’re ready to solve the world’s biggest development challenges.  

Over the next several months, as we set up the new International Development Finance Corporation, we’re trying to convene the best hearts and minds in the world to help us think through some of these challenges. So I’d hope that your readers take up that gauntlet to help think through how to deploy equity, how to deploy technical assistance, how to think through what a chief development office should look like – and a myriad of other issues that we’re going to need to put the world’s best thinking around, to be able to be a world class development institution.

 

Scott Anderson is a NextBillion contributing editor.

 

Photo courtesy of Social Capital Markets (SOCAP).

Homepage photo credit: wbeem, via Flickr.

 


 

 

Categories
Entrepreneurship, Finance, Investing
Tags
development finance, entrepreneurship, gender gap, global development, impact investing, investment fund, Q&As, SOCAP, social business, social enterprise, Women