The document discusses financing development to achieve the UN Sustainable Development Goals (SDGs). It notes that the SDGs require development finance to "go big" by scaling up from billions to trillions. It distinguishes between "scale investors" like pension funds that need market structures to invest large amounts, and "catalytic investors" like governments and philanthropists that can take more risks. Canada can help by building on existing blended finance initiatives and reforming its development finance institution to take more risks and offer a broader range of instruments as a catalyst.

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www.cidpnsi.ca @CIDPNSI
SDGs and the Future of Development
Finance: Go Big, or Go Home
Aniket Bhushan
Principal, Canadian International Development Platform
October 24, 2017

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The Platform
Policy Research
Policy analysis and deep
dives into Canada’s
development levers,
focusing on foreign aid,
trade, investment,
migration and
remittances.
Data Analytics
Leveraging open data and
big data from a
development
perspective.
Community
Engaging policy makers,
civil society, academia,
and private industry
through targeted events
and workshops.

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3 Points
• SDGs are a challenge to development finance
to go big
• Way to think about investors – ‘Scale investor’
‘Catalytic investor’
• Canada can step up by doing more to build a
development finance ecosystem off the
current base

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A Quick Tour by the Numbers
• 0.7% (relic: ODA 2/3rd of rich-poor cap flows, to
<15%)
• Logic of investment (econ, prod sector ODA
flat/down) vs logic of intervention (social 2x,
humanitarian 22x)
• Share of ODA on immediate emergencies over 20%
• 6 countries met 0.7; 4/6 in-donor refugee costs 17%
to 25% ODA

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A Quick Tour by the Numbers
• 35% to 10-9% : extreme poverty success story
• 63 to 31: no. of LICs in 2000 vs 2015
• 3% to 7% : extreme poverty by 2030 (best case)
• SSA: No. of absolute poor ($1.90/day) in 2013 >
1999
• 80%+ : SSA share of global extreme poverty by
2025, compared to 55% today
• From 8 / 60 (MDG) to 17 / 169 (SDG)

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Dissonance
• Big global agendas with big price tags
• ODA at a historic high, is the most stretched (and stagnant)
• Future profile: very small number of highly ODA dependant
LDCs & fragile, plus more expensive emergencies
• Donor money (ODA) can only shrink (relative terms; >70% of
financial flows in 25 poorest LDC/LIC, 13% in LMIC, 6% in UMIC)
• Urgently (re)discover logic of investment to stay relevant
• SDG price tag looks daunting ($2.5 to $3trillion), but only in
isolation
• No shortage of investable capital, or returns (double, triple
bottom line)
• What’s the problem?

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Return of Capital vs Return on Capital
• SDG agenda is a question of scale and scale-up (billions to
trillions)
• Who are scale investors? What does she need (doesn’t have,
wouldn’t bother to develop)?
• Institutional investor – e.g. pension fund assets $38 trillion!
• Needs – some semblance of market structure; some
depth/layers; visibility to see ways in and out
• Higher the risk, the more Return of Capital > Return on
Capital

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Two Major Barriers Prevent Capital Flowing to
Returns in Frontier/EM/Developing Markets
• Instrument(s):
– Mismatches between the types of investment products available and the
investment requirements of various investors. One of the key factors that limits
capital flows to poor countries and riskier markets is that the largest institutional
investors are governed by strict rules as to what they can and cannot invest in
and how. In most cases, credible financial instruments and products to facilitate
investment in poor/risky markets simply do not exist at scale to move the
needle for big investors.
• Partner(s):
– Perhaps the most important constraint of all, is that poor countries lack the local
capacity to promote investment and package bankable deals. This role is played
by the local financial community, i.e. those that combine a deep understanding
of the local context with finance. The fact that this sector barely exists across
many of the poorest countries is one of the biggest constraint to investment
promotion.

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Opportunity for Catalytic Investor and
Reimagining Role of ODA
• Who are the catalysts?
– Governments, CSOs, philanthropists, HNI, retail, impact
– DFIs (2002-2014 growth 10x ODA)
– Local PE, venture, some FIs, other early movers
• Catalysts are platforms; network effects supersede scale
• Old and New modalities:
• Blended finance, SIBs DIBs, green blue bonds, hybrid
instruments; loan guarantees, FoF, equity
• Risk: shiny object syndrome, innovation for sake of innovation

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Opportunity for Catalytic Investor and
Reimagining Role of ODA
3-fold focus, but first satisfy some ‘additionality’ bar:
• Scale supply of capital to existing opportunities
• Invest in local capacity to increase the pipeline of
bankable projects
• Change risk-return profile at the margin (walking the
tight rope between good & bad kind of distortion)

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Opportunity for Canada: Building a
Development Finance Ecosystem
Blended finance
• Much more innovation needed to get private
investment at scale into development
• Blended finance as experimentation and
innovation sandbox
• Base exists, with Convergence (Toronto),
CIFA/Cordiant, INFRONT/MEDA/Sarona, MaRS,
CAFIID

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Opportunity for Canada: Building a
Development Finance Ecosystem
Cdn DFI
• $300 mn cap can only be catalyst
• Most DFI do not take enough risk / Make too much money
• Crowding, competition, chasing each others marquee deals
• Cdn DFI needs right risk profile
• Formalizing two principles: additionality and sustainability
• Can be catalytic and impactful with small scale and simple
• Bring a wider range of offerings - broader instruments incl hybrid across
capital structure - to new segments
• Speed and responsiveness
• Development outcome tracking and measurement, and transparency

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3 Points
• SDGs are a challenge to development finance
to go big
• Way to think about investors – ‘Scale investor’
‘Catalytic investor’
• Canada can step up by doing more to build a
development finance ecosystem off the
current base

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Contact
Aniket Bhushan
Principal Investigator and Lead Analyst
aniket@cidpnsi.ca
+1 (613) 520-2600, ext. 6198