Presented by Aniket Bhushan, Principal Investigator at the Canadian International Development Platform (CIDP). For more information, visit our website: www.cidpnsi.ca

1. DFI 101: Considerations for a
Canadian DFI
Presentation to EDC Information Session
Aniket Bhushan
Canadian International Development Platform (CIDP)
Norman Paterson School of International Affairs (NPSIA)
www.cidpnsi.ca
aniket@cidpnsi.ca
April 5, 2017

2. Overview
• Macro landscape
• DFI basics: is/is not, should/should not
• Doing DFI is (and should be) hard
• Considerations for CdnDFI

3. Macro: Brief Situational Update
• Global poverty reduction and development: good
news story, but last mile problem
• Extreme poverty ($1.90/day PPP) at or just below
10%, compared to 53% in 1981, 44% in 1990 (base
of the MDGs)
• That still means +750mn in extreme poverty; with
the largest share in the hardest to reach (SSA,
fragile, pockets in otherwise thriving MICs)

6. Macro: Brief Situational Update
• New goals and agendas ever broader and more
ambitious
• SDG/GG purports to “eliminate extreme poverty by
2030” (+ 168 other targets!)
• Come with a bigger price tag
• In addition – climate finance, infrastructure
financing gaps, humanitarian needs – all stretch
budgets to limit

8. Macro: Brief Situational Update
• Increasing realization: standard approach of donor
taxpayer funded grants + domestic mobilization,
will not be enough to meet the needs set by
ambitious agendas
• Economic and financial linkages between
developing and donor countries rapidly evolving
• There are ROI/commercial return opportunities left
on the table (plus concern re crowding-out); also a
need for financial mkt discipline

10. DFI Basics
• Financial institution with development impact mandate (vs.
development institution with financial toolkit)
• Occupy space between public foreign assistance and private
investment
• Catalytic financing; strategic, to mobilize greater private
investment
• Most do this via a range of instruments across capital structure
• Addition and complementary, but distinct from other (ODA); not
grants, not from concessional ODA budget
• Not new by any stretch (CDC, 1948); but increasing interest (CDC
just had a major capital increase the first in decades, GBP1.2b to
GBP6b+)
• Bilateral DFIs range from fully state owned to partially; but all are
gov backed, and invest in private sector projects in DCs

12. DFI Basics
• First movers, integrators, financiers, advisers, partners and
implementers
Growth and Scale
• 2002 to 2014:
• ODA: $88b to $137b , about 50%
• DFI annual commitment: $10b to $70b , about 600%
• Half of ODA, but possible that annual commitments will surpass ODA
within decade
Direct and indirect effects
• DFI cornerstone of invest in Africa (9% of African PE vs 1.5% global)
• Largest investors in independent power, clean energy in Africa
• Even more important indirect signaling effect to prospective investors,
especially in contexts where information gaps are significant (Celtel, Mo
Ibrahim, CDC first investor)

13. DFI Basics
Where do they operate/invest:
• DFIs play a key role in countries that are transitioning out of reliance on ODA.
• About 75% to 80% of DFI investments are in lower and upper middle income
countries (MICs), with the rest in low income and least developed countries
(LICs and LDCs).
• This fits with the changing geography of poverty which is increasingly
concentrated in large middle income countries.
• Based on OECD-DAC data on large bilateral DFIs (does not include multilateral
DFIs), over the period 2008-2013.
Sectors:
• The majority of DFI investments are in five sectors reflective of the evolution of
developing countries to MIC status: banking and financial services; industrial
infrastructure; energy generation and supply; transportation and storage; and
communications.
• These are also areas ODA financing is either insufficient or leaves important
gaps.

14. Doing a DFI Should Be Hard
• Development impact adds significant complexity to
already complex task of portfolio choice and risk
mgmt.

15. Risk (std dev)
Return
High
Low
HighLow
Efficient frontier

16. Risk
Financial Return
High
Low
High
Low
Development
Outcomes
Low
High

17. Complex, Multidimensional Portfolio
Choice in Finance + Development Context
• Standard MPT
• Higher risk, higher
return (up to point)
• Lower risk, without
sacrificing return (up to
point)
• Already complex,
imperfect info
• Complex MPT, dev
outcomes
• Higher risk, low return;
but, high ‘development
additionality or
outcome’ (up to a point)
• Low risk, negative
return; but, high dev
add/outcome (up to a
point)
• Low risk, high return;
but, no or negative dev
add/outcome

18. Doing a DFI Should Be Hard
• Significant information gaps, hard(er) to price risks
• Geographic and sectoral diversification considerations
• Depth and type of engagement (significant investment
in “ground game”, “localization”)
• Time horizon, type of engagement (lead vs. co invest),
considerations re where in the capital structure;
matching dev delta with invest delta
• Non-economic, political, idiosyncratic risk factors
• Generating awareness about itself amid crowded field
of more established players (and growing new players,
EMs etc.)

19. Canadian DFI

20. Canadian DFI

21. Canadian DFI
Mandate
• Development additionality at top of mandate
(formally)
• Core purpose and incentive alignment
Governance
• Effectively balance development alongside
commercial objectives
• Implications for investment approval process,
oversight, KPIs
• Reinvestment of returns

22. Canadian DFI