Financing for development

  • Keywords: Financing for development, financial innovation, risk sharing, mobilization of local resources

By Nicolas Vincent

Photo : Jean-Claude Galandrin, AFD
Photo : Jean-Claude Galandrin, AFD

Setting development targets (SDGs, the Sustainable Development Goals for 2030), evaluating the financial resources required to achieve them, and seeking and mobilizing the sources of funding to close the financing gap of developing countries is an exercise which has the merit of making the needs of the poorest developing countries the focus of media attention and mobilizing the opinion of the public and governments in favor of maintaining the level of public budgetary resources earmarked for development policies (failing an increase in it). But the development process does not simply boil down to an equation: “identified needs + financial resources = Development”. In addition, to provide a financial response to the SDG targets, Official Development Assistance is obviously insufficient and other actors need to be mobilized, in the North and South alike. Consequently, the 3rd international conference on financing for development in Addis Ababa (July 2015) promoted the mobilization of all actors with multi-actor catalytic financial tools in order to bring about greater leverage. Financing development first and foremost means assisting development actors: governments, State-owned companies, private companies, banking sector and NGOs, in their traditional activities and, especially, in their innovative approaches (new development models). To be lasting and sustainable over the long term, financing for development must also be able to rely on increasing local resources (local savings and tax resources).

The priority aim of the “Financing for Development” research program is to gain a better understanding of these two aspects of financing for development: How to innovate to finance more and differently? And: How to support the mobilization of local resources?

  • Innovating to finance sustainable development: Financial innovation for financial or insurance instruments is a possible way forward, but the greatest potential probably lies in developing innovative partnerships between financing actors as they either create leverage (cofinancing and blending, catalytic effect of public funds on private funds), or allow the risk of operations to be shared (asset class investment funds, first-loss mechanisms…). For example, Development Impact Bonds are innovative partnership models that need to be studied… These new financial tools/partnerships should be able to finance the transitions required by sustainable development (towards more ecological farming, towards the energy transition, towards universal social protection…).

 

  • Helping to mobilize local resources: In addition to the macroeconomic objective of promoting local resources in order to avoid external overindebtedness and the fact that they contribute to greater ownership of the public policies they finance, current – but especially future – local financial resources guarantee that current financing will be repaid in the future. Mobilizing local tax resources is a priority for the donor community and there are a whole host of projects: build tax administration capacities, fight against tax evasion and aggressive corporate tax optimization, taxation of natural resources…

This program consequently focuses on the new public/private partnerships and new risk sharing tools, financing transitions from one development model to another, and the issue of the erosion of the tax base in developing countries. It uses analytical grids from economics, the sociology of organizations and management sciences.
 

Last update in December 2015

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