Understanding the Role of Development Finance Institutions in Promoting Development: An Assessment of Three African Countries

This report seeks to understand the role of development finance institutions (DFI) in supporting the objectives of national development plans, particularly those emphasizing the SDGs, set by the developing countries within which DFIs invest. The authors focus on DFIs that provide finance to the private sector under concessional terms, seeking a profit. The analysis of DFI funding is set within the broader context of the role played by financial flows, such as commercial finance and foreign aid (i.e. Official Development Assistance, ODA), in supporting national development objectives. Three country case studies are used as a lens for the analysis, namely Kenya, Ethiopia and Ghana. The report defines the role that DFIs play as investors as well as their potential contribution to development outcomes, including the achievement of the Sustainable Development Goals (SDGs). Finally, the report identifies opportunities where DFI investments could support sectors deemed as strategic by governments following the DFI investment principles of financial additionality, development impacts and catalytic effects. The paper suggests four steps that DFIs could follow to increase their level of funding towards strategic sectors. These are: To identify the strategic sectors Compare these with current DFI investment activities Discuss how DFIs could support investments in these sectors with key stakeholders (private sector, other financing institutions and the government) To invest in the target priority sectors.