MAXIMIZING FINANCE FOR DEVELOPMENT (MFD) About the The World Bank Group is engaged in a crucial effort to redefine World Bank Group our approach to development finance, address the rising aspira- tions of the poor, and achieve our goals of ending extreme pov- The World Bank Group is one of erty and boosting shared prosperity. Our approach, MFD, entails the world’s largest sources of fund- leveraging the private sector in ways that optimize the use of ing and development expertise for scarce public resources. developing countries. It comprises five closely associated institutions: Our aim is to improve the lives of poor people while promoting good gov- ernance and helping ensure environmental and social sustainability. While • IBRD and IDA, which together estimates vary, analysts say it could cost up to $4.5 trillion a year in state form the World Bank; spending, investment, and aid to meet the sustainable development goals. • IFC; Hence, it will be nearly impossible to meet these goals by relying on public funding alone. The private sector can play a much bigger role in socially and • MIGA; and environmentally responsible development, both as an investor and as a source of innovation and expertise. • the International Centre for Set- tlement of Investment Disputes Our client countries will need a broad range of solutions to meet their devel- (ICSID). opment goals, to ensure inclusive and sustainable growth without pushing the public sector into unsustainable levels of debt and contingent liabilities. The Each institution plays a distinct Hamburg Principles, adopted at the G20 in July 2017, emphasize country role in pursuing the World Bank ownership in defining investment priorities and the potential of the private Group’s mission to fight poverty sector in providing solutions. and improve living standards for Today, many governments seek the private sector’s help to advance develop- people in the developing world. ment goals, including transformation of sectors that provide essential services or are critical to economic growth. Many businesses offer valuable skills, re- sources, and access to markets—and many recognize that promoting sustain- able development makes good business sense. Photo © hxdbzxy/iStock The MFD approach builds on substantial experience How MFD works across the World Bank Group in helping governments The Principles for Crowding-in Private Sector Finance for crowd in the private sector to help meet development Growth and Sustainable Development provide a common goals. MFD seeks to make this systematic across our framework for MDBs to increase levels of private invest- institutions and financial instruments. Recent examples ment in support of development. of cross-World Bank Group collaboration on private solutions provide some important lessons. Based on their experience in working with the private sector, the World Bank Group and the other MDBs Vision have agreed to focus on three main areas: MFD aligns development efforts into a shared vision, • Strengthening investment capacity and policy led by client countries with support from the World frameworks at national and subnational levels; Bank Group and other multilateral development banks • Enhancing private sector involvement and prioritiz- (MDBs), investors, and partners. The private sector plays ing commercial sources of financing; and a substantially bigger role, both as a financier and as a • Enhancing the catalytic role of MDBs themselves. source of knowledge, expertise, and innovation that can In scaling up private-finance mobilization, the aim is yield transformative solutions. The public sector develops to support countries’ development goals, in ways that legal and regulatory frameworks, works on key policy complement and reinforce public resources. With our reforms, engages new partners to achieve development counterpart MDBs, the World Bank Group can pro- goals, and acts when private solutions are not available. mote private investments that are economically viable and cost-effective, fiscally and commercially sustainable, Strategy balanced from a risk-reward perspective, and transparent. Our member governments are asking for World Bank We are also well placed to help ensure these investments Group assistance in crowding in private solutions for meet social and environmental safeguards, as well as development. We are working in several countries to support commitments to address climate change. implement the MFD approach, focusing on infrastruc- For the World Bank Group, the MFD approach is critical ture and other sectors that benefit economic growth, to reach our goals for 2030: ending extreme poverty and poverty reduction, human capital, and resilience. These boosting shared prosperity. efforts build on ongoing WBG programs that aim to address binding constraints and unlock opportunities for Given the demand-driven nature of the MDBs’ work, the private sector to play a bigger role in development. client countries are responsible for engaging the MDBs in catalyzing private investment—each MDB will tailor its We will closely monitor the impact, particularly how the approach to the opportunities in its member countries as pilots benefit poor people. Based on lessons learned, the well as its own remit and structure, within the framework aim is to scale up, geographically and by sector. Lessons established by the principles. will continue to be incorporated as the MFD approach is rolled out more generally. THE MFD APPROACH WHEN A PROJECT IS PRESENTED, ASK: “Is there a sustainable private sector solution that limits public debt and contingent liabilities?” If the answer is... YES NO Ask whether it is because of: Promote such private solutions • Policy or regulatory gaps or weaknesses? If so, provide WBG support for policy and regulatory reforms. • Risks? If so, assess the risks and see whether WBG instruments can address them. If you conclude that the project requires public funding, pursue that option. www.ifc.org www.worldbank.org www.miga.org