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.
Aid, public sector loans and private investment form the three main channels exist for development finance from the OECD Development Assistance Committee (OECD DAC) donor countries and multilateral institutions to low- and middle-income countries. Each channel receives significant publicly backed flows of development finance every year. The trio 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 by an average annual rate of around 10 per cent. European governments have supported a significant expansion of DFI portfolios, primarily to spur job creation, growth and private sector development. The annual level of new investments by the European DFIs reached €8 billion in 2018. 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.