Is IDA’s Private Sector Window mobilizing the private sector?
Published: May 08, 2024
BY SALLY PAXTON | MAY 8, 2024 | BLOG
Since the establishment of the International Development Association’s (IDA’s) Private Sector Window (PSW), there have been concerns about its structure, use of blended finance, and the inability to measure its progress and impact. With the start of IDA21 replenishment discussions, it is an appropriate time to analyze the PSW – especially to understand whether and how it is mobilizing the private sector. And in the context of broader MDB reform efforts, how do we scale up private capital mobilization to close the significant financial gaps needed to meet the Sustainable Development Goals?
Origins of the Private Sector Window
During IDA’s 18th replenishment in 2017, the Private Sector Window was established with US$2.5 billion to be run through the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA). The IDA 19th replenishment made the same US$2.5 billion commitment. In response to COVID-19’s pandemic shocks on poverty, growth, food insecurity, and vulnerable populations, IDA 20 was moved forward by one year. The PSW increased to US$3.0 billion.
The purpose of the PSW is to provide blended finance – concessional resources mixed with private money – to enable IFC, MIGA, and private investors to take on high risk investments in both IDA and fragile and conflict affected countries. PSW investments need to conform to certain eligibility criteria, including adherence to the DFI Enhanced Blended Concessional Finance Principles for Private Sector Projects. The second of these principles requires development finance institutions (DFIs) to crowd in private finance through catalyzing market development and mobilizing the private sector with minimal concessional financing.
Early concerns about the Private Sector Window
The PSW has been a topic of considerable concern from both civil society and experts. Many raised issues about the use of ODA – a scarce resource – for IFC and MIGA projects, especially given the ever-growing global needs. Additional issues concerned the slow uptake of the PSW. In IDA18 and 19, IDA financial reports showed only one-third of PSW resources had been utilized, leaving valuable IDA resources unused.
Early assessments also raised the question about the extent to which the private sector had been mobilized. Going into the IDA20 replenishment, Publish What You Fund – which is analyzing the transparency of DFIs – proposed two practical solutions to improve the transparency of the PSW: reporting on project level development impact and on private capital mobilization. The underlying rationale was that if the PSW demonstrated how blended finance in high-risk deals could be successful, private investors would be more likely to support comparable deals. Critical to this premise, however, is transparency – which is fundamental to demonstrate impact, showcase successes, and enable stakeholders to learn from failures.[1]
IDA20 and Private Sector Window mobilization
In February 2022, the final report from the IDA Executive Directors on IDA20 contained the following provision:[2]
Moreover, in IDA20, IFC and MIGA will complement the existing project information disclosed to the public with systematic impact[3] and mobilization data for projects benefiting from PSW support.
In January 2024, the World Bank published its Independent Evaluation Group’s review of the PSW, which covered IDA18, IDA19, and IDA20. The review found that the PSW was on track to be fully utilized under IDA20. Further, management’s response to the evaluation reported:
There is also increased leveraging of IDA resources—since inception, $3.9 billion of PSW approvals have mobilized $20.3 billion of additional capital in eligible markets from IFC, MIGA, and other third-party investors, including development finance institutions and purely commercial private sources (as of June 2023). The resulting mobilization ratio of 5.2 times surpassed management’s initial expectation of 4.0.
Despite this largely glowing review, publication of project level data required under IDA20 has been slow in coming. Since the IDA20 commitment, we have been watching for the publication of both development impact and mobilization data. In April 2024, IFC posted this data on private sector mobilization under the PSW:
- In FY2023 there was one project with external mobilization, M-KOPA Holdings Ltd.
- For FY2024, which ends in June 2024, we have been told that the IFC is expected to publish at least three additional projects following an internal review.
The published data seems to be at odds with the substantial claims of mobilization made in the independent review.[4] Either there are many more projects that have not yet been identified as mobilizing private capital – or IFC and MIGA, along with other DFIs, are mobilizing themselves much more than the private sector. Given the growing financial gaps needed to achieve the SDGs, shareholders need to be asking the hard questions about private sector mobilization, as well as the value and use of the PSW. The next opportunity comes in a month at the third IDA21 replenishment.
Transparency and private capital mobilization
The above lack of clarity around what is included in claims of PSW mobilization highlights the need for the disclosure of more disaggregated and detailed mobilization data. In this spirit, Publish What You Fund has been working on the broader issues of private capital mobilization – both to improve measurement and disclosure of PCM by all MDBs and DFIs – complete with a proposed solution. There is now broad recognition among a range of stakeholders that increasing private capital mobilization is critical; the Secretary of the US Treasury has called for a “cultural change to accelerate private sector mobilization.” Improving disclosure around the PSW, albeit incomplete, shows that it can be done. But just as with the lack of transparency around the PSW, the current state of transparency around PCM is wholly inadequate to understand, analyze, and learn how best to drive private sector investment. Without a real change to transparency practices, current PCM practices will never deliver the scale of financing necessary to meet global demands.
[1] This proposal built upon a commitment by IFC and MIGA to improve “disclosure processes to be more in line with IDA’s public sector practices.”
[2] page 79.
[3] IFC is working on upgrades to the AIM Navigator system which is scheduled to go live this summer and is supposed to provide project results data, including qualitative assessments, additionality, and indicators.
[4] Adding to the confusion, IFC seems to have utilized its “core mobilization” measurement for PSW projects (akin to private direct mobilization) which is a different measure from the current MDB Joint Methodology used by a number of MDBs and DFIs, developed through work on the MDB Task Force on Mobilization and led by IFC.