More Mobilizing, Less Lending: A Pragmatic Proposal for MDBs

April 03, 2018

Key Takeaways

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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