CIAO DATE: 7/04

Capital Plus
The Challenge of Development in Development Finance Institutions

Abstract

Capital Plus is a position paper written by the members of the Development Finance Forum (the Forum), a group of practitioners that has met for a week each year since 1997. The Forum members use the term “development finance institutions” (DFIs) to refer to our diverse institutional forms, customer strategies, and products, which include microcredit, loans to small and medium sized businesses, and investments in housing projects and community facilities. The word “practitioner” is the key to our group. While donors, academics, and representatives of multilateral institutions play an important role in building and marketing the development finance field, they have often dominated the way debates and ideas are shaped. We asked ourselves: as practitioners, did we have, or could we develop, a common perspective? Could it shape the debate in a new way? What new ideas could we add?

The Capital Plus paper is aimed at fellow practitioners and socially-minded investors and donors. Our intention here is to set out, from a practitioner’s perspective, some of the pressing issues facing DFIs that choose to have a “double bottom line”–of profitability and social impact–and to offer our current thinking about how to approach these issues.

That double bottom line is at the core of the paper, and our position. To survive and be useful we must be sustainable. And to be useful developmentally we must work towards social and economic impact. In short, we see economic development–one outcome of which is a substantive and sustained change in the condition of poor people–as an intrinsic part of development finance. With that perspective, access to credit appears as only one piece of a much larger and more com plex problem. The constraints that keep our customers from building wealth range from poor workforce skills and education, to substance abuse problems, to ineffective social organization, to limited government services, to the absence of private sector investment, to healthcare problems, to weak communications infrastructure, to inappropriate government policies, and sometimes to regressive perspectives and values regarding development and business on the part of donors or investors who are increasingly focused on narrowly defined market outcomes.

And so we view the tool of capital as the glue around which other tools–technical assistance, information services, environmental remediation, sectoral interventions, and more–adhere. Not only are these other tools attracted to capital, they are made more effective by it. In short, while we do not lose sight of the primary role of credit provision, we feel we must move towards a broader range of interventions than financial intermediation alone–hence capital plus. We summarize here the seven sections of our main position paper.

Full Text (PDF, 28 pages, 631.8 KB)