What if the real test of development finance isn’t just the investment it finances today, but the private investment it unlocks tomorrow?
In a previous blog on building local investment pipelines, I explored how development finance can help build the institutions and capabilities that generate future private investment. But there is a broader question: how do we recognise multilateral development banks’ (MDBs’) contribution to creating the conditions for investment and encourage them to do more?
This question was central to the Asian Development Bank’s recent Private Capital Enablement Forum in Manila, where I gave the opening keynote. I came away encouraged by the growing recognition that MDBs need to look beyond how much they finance or mobilise and ask whether their interventions create the conditions for private investment to follow, even after they step away.
This, to me, is the next frontier for development finance. But it raises some difficult questions about how shareholders define and measure success, and what MDBs would need to do differently. Of course, enabling more private investment is not an end in itself. What ultimately matters is whether that investment contributes to sustainable growth and development.
What should count as success?
The way shareholders and MDBs think about success has changed. First, the focus was on how much they lent or invested. Then came the push to mobilise private capital alongside their own. Now attention is turning to the broader catalysation agenda. Within that agenda, private capital enabled (PCE) seeks to capture private investment enabled by an earlier, separate MDB intervention.
This matters because MDB finance, even alongside mobilised private capital, will only ever meet part of developing countries’ investment needs. Much more investment must happen without MDB support, requiring conducive policies, capable institutions, infrastructure, and financial systems that give firms and investors the confidence to invest.
In Manila, discussions highlighted three channels through which MDBs can enable private investment: rules and entry, through reforms that remove investment barriers; confidence and proof, through infrastructure, stronger institutions, and demonstration effects; and pipeline and capability, through project preparation, stronger firms, and local intermediaries.
None of this is new. What is changing is the desire to put a number on this work and, more importantly, to make enablement a deliberate part of how MDBs choose, design, and manage interventions. The opportunity is to embed enablement in institutional priorities and incentives, leading to better decisions and development outcomes.
Being more deliberate about market outcomes
Consider an MDB supporting reforms to encourage private investment in renewable-energy investment. New policies and regulations may be an important first step, but they don't necessarily translate into investment. The question is whether they make it easier for developers to enter the market and get projects off the ground, and how much of any subsequent investment can reasonably be attributed to the reforms.
These questions encourage MDBs to consider what prevents investment, how an intervention might change things, and what evidence would show whether it worked. This is what I mean by intentionality. There is a difference between noticing wider benefits afterwards and deliberately designing an intervention to achieve them.
It also creates accountability. If enablement is an explicit objective, it should influence which interventions are chosen, how they are designed, and what happens when results fall short. If private investment in renewable energy does not follow from the reform, the MDB and government should use that evidence to identify what is still holding investors back and adjust their approach, while there is time to make a difference.
One idea worth exploring is how MDBs could involve countries more in this process. Governments, local investors, and businesses could help identify the market changes MDBs should aim for and provide evidence about what changes. This wouldn’t require governments to sign off on PCE estimates, but involving them could help MDBs focus on what matters locally and give their assessments greater credibility.
Our recent CGD research found that 12 of the 17 MDBs and development finance institutions (DFIs) we reviewed assess market impact and 10 use scores or ratings. So there is already experience to draw on. What we know much less about is whether these assessments influence investment decisions and what market impact materialised.
The attraction, and risks, of putting a number on PCE
The need to quantify PCE is understandable. Numbers matter inside large institutions as they attract management attention, influence priorities, shape incentives, and create accountability. Without quantification, PCE could struggle to compete with commitment and private capital mobilisation targets.
But I worry about replacing one volume metric with another. Quantifying PCE risks reproducing some shortcomings of private capital mobilisation targets. Enabling effects can be indirect, take years to materialise, and depend on multiple actors, making attribution difficult. The danger is that MDBs report impressive numbers disconnected from changes in market conditions or investor behaviour. And more investment enabled does not necessarily mean greater development impact.
At the intervention level, theories of change should map the pathways through which MDB activities are expected to influence market conditions, investor behaviour, and ultimately, investment at the sector and country level. Intermediate qualitative and quantitative indicators such as new market entrants, longer financing tenors, and repeat transactions can test these pathways, support credible PCE estimates, and capture wider effects that a dollar figure might miss.
Getting comfortable with being uncomfortable
Something else struck me in Manila. When developing a new metric, there is a temptation to settle quickly on a methodology so everyone can start reporting.
MDBs should resist this temptation, and they should approach PCE measurement as a journey of experimentation and learning, testing assumptions, improving methods, and revising estimates. But experimentation needs clear boundaries if the results are to be credible.
I would start with outcomes closest to an intervention, where evidence is strongest. More distant effects may also matter, but they need stronger evidence to support a PCE claim. Greater consistency across MDBs would help; common definitions, clear boundaries and minimum evidential standards would be a good starting point. Approaches need room to evolve, recognising uncertainty and that interventions will not always work as expected.
The real value of this journey is not simply better estimates of PCE, but in learning what works and why, and using that knowledge to make better decisions. In the end, this will matter more than the numbers themselves.
What would MDBs actually do differently?
For me, this is the bigger question. If PCE becomes an institutional priority, what changes? I see three broad implications.
First, rather than beginning with a transaction, MDBs need to understand what holds investment back. Country dialogue and growth diagnostics should inform strategies and identify where interventions can make the greatest difference.
Second, it means working differently, moving away from transaction-based approaches to programmatic ones. Enabling investment often requires upstream policy reforms and institutional strengthening, midstream project preparation and market development, and downstream financing and risk mitigation. These activities often sit in different parts of an MDB but, as I noted in Manila, markets do not experience MDB organisational charts. Sovereign and private-sector teams need common outcomes, with interventions planned and sequenced accordingly.
Then, finally, there is the issue of incentives. Development finance faces a paradox. The more successful an MDB is in helping a market function independently, the less visible its contribution may become. If institutional success is judged mainly by commitments, disbursements, and deals closed, such work will struggle to compete.
PCE measurement could make this work more visible. But it must also influence strategies, resource allocation, the management of operations, and staff incentives. Otherwise, MDBs will end up measuring something new while continuing to work much as before.
Trust matters too
A final point from Manila stayed with me: the importance of communication, both internal and external.
One panellist remarked on how MDBs celebrate signing ceremonies and investment commitments, while the policy reform that makes future investment possible rarely receives the same attention. I thought this was a good observation. If MDBs want to take enablement seriously, their leadership needs to recognise and celebrate this work too.
There is also the question of public trust. MDBs already face considerable scrutiny, and reporting large PCE numbers without explaining how they were arrived at risks adding to that scepticism. I see little reason why MDBs cannot be more open about how they estimate PCE and the evidence behind their claims. Much of this work concerns policy reform or changes in how markets function, so commercial confidentiality should be less of a constraint than it is for transaction-level mobilisation. Being open about the uncertainties, including where interventions have fallen short, would also help build confidence in the results.
Making the next frontier count
I left Manila optimistic about where this agenda could lead. Recognising the investment MDBs help make possible should be welcomed, and quantification may give that ambition institutional weight. But measurement must be grounded in qualitative and quantitative evidence of market change and a commitment to learning.
For me, the real test of this agenda is not the size of the number reported. It is whether we can see PCE making a material difference to the decisions MDBs make about where and how they intervene, and whether this enables private investment that delivers meaningful development outcomes. That is a frontier well worth pursuing.
