April 03, 2018
MDB private sector operations or windows (PSWs) are essential actors in mobilizing private finance for development, but their mobilization track record to date falls far short of a meaningful contribution to annual SDG financing gaps in the trillions.
- PSWs must evolve from lenders to mobilizers, but change is impeded by mixed shareholder messages and financial models that favor market returns for their own account.
- This paper proposes adaptation of the financial model to facilitate more risk tolerance, increased mobilization of private finance, and greater development impact.
- The proposal is to add and capitalize special purpose vehicles (SPVs) to PSWs that are designed to target highly catalytic uses—such as early stage finance and high-risk project tranches—while maintaining overall PSW ratings, financial sustainability, and returns.
- These SPVs could be capitalized from both public and private sources (e.g., foundations). Instead of creating one SPV for every MDB, a single SPV could serve multiple MDBs.
- MDB shareholders would benefit from: the limited new capital needed; the opportunity to create a new purpose-built, more effective SPV governance structure; creation of stronger incentives for cross-MDB collaboration; and linking their new capital to better institutional performance on innovation, mobilization, and development impact.
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