The focus on private investment represents a significant shift in the global development finance landscape, and development finance institutions are a key part of that evolution.
There are three main channels for development finance from the OECD DAC donor countries and multilateral institutions to low and middle income countries: aid, public sector loans and private investment. Each of these channels significant publicly backed flows of development finance every year. The three channels are highly complementary and increasingly balanced, but the methods and instruments involved vary significantly.
While donor countries have maintained Official Development Assistance (ODA) at a steady level, publicly-backed development finance for private sector projects provided by DFIs has grown significantly, at an average annual rate around 5%. European governments have supported a significant expansion of DFI portfolios, primarily to promote job creation, growth and private sector development. The annual level of new investments by the European DFIs reached €6.8 billion in 2016. If the current trends continue, it is likely that new DFI investments in developing countries could approach the level of ODA from donor countries within the next decade.