Development Finance Institutions Explained
The patient capital behind much of Africa's infrastructure and industrial growth.
Why Is Demand Increasing?
As African businesses increasingly need patient, long-term capital for infrastructure and industrial projects that commercial banks are often unwilling to finance given the risk and duration involved, development finance institutions have become an increasingly important funding source, and growing awareness of how to access them is expanding their practical relevance to entrepreneurs.
Who Is Buying?
This is a capital source rather than a market, with development finance institutions such as the IFC, African Development Bank and various bilateral development finance agencies providing debt, equity and guarantee products to businesses and infrastructure projects that meet their development impact and financial criteria.
Which Countries Have an Advantage?
Countries with more stable macroeconomic conditions and established legal and regulatory frameworks, such as Kenya, Rwanda and Morocco, generally find it easier to attract development finance institution investment given these institutions' careful risk assessment processes.
What Margins Are Possible?
Development finance institution capital is typically priced below commercial market rates given its development mandate, though the application and due diligence process is often more rigorous and time-consuming than commercial financing, meaning the cost savings need to be weighed against the additional time investment required.
What Certifications Are Needed?
Businesses seeking development finance institution funding typically need audited financial statements, formal corporate governance structures, and often need to demonstrate specific development impact metrics relevant to the institution's mandate, such as job creation or environmental benefit.
What Financing Exists?
Development finance institutions offer a range of instruments beyond simple debt, including equity investment, guarantee products that help businesses access commercial bank financing, and blended finance structures that combine concessional and commercial capital.
What Mistakes Do Beginners Make?
Businesses often approach development finance institutions without adequately understanding their specific mandate and sector priorities, applying broadly rather than targeting institutions whose development objectives genuinely align with the business's activities and impact.
Which Technologies Are Changing the Industry?
Digital due diligence and impact measurement tools are helping development finance institutions assess and monitor investments more efficiently, gradually reducing the historically lengthy timelines associated with development finance transactions.
Where Is the Greatest Profit in the Value Chain?
For businesses, the greatest value from development finance institution capital often comes not just from favourable pricing but from the credibility and due diligence validation it provides, which can help unlock subsequent commercial financing on better terms.
How Can One Participate?
Businesses should research the specific sector and development impact priorities of different development finance institutions before applying, and consider building relationships with local representatives or intermediary advisors who understand each institution's specific requirements and processes.