The aim of the United States Agency for International Development (USAID) Capstone comes from the restructuring of Overseas Private Investment Corporation (OPIC) and USAID Development Credit Authority (DCA) into a new US Development Finance Corporation. USAID leads international development and humanitarian efforts to save lives, reduce poverty, strengthen democratic governance and help people progress beyond assistance. The objective of this Capstone was to provide USAID with detailed research on the types of structures and vehicles used to mobilize institutional investors into private sector investments low-to-middle income countries.
The team selected 5 DFI’s through a unique methodology and created a DFI ranking consistent with USAID’s objectives. A spectrum of DFIs was selected which created a representative sample to utilize in the in-depth analysis. Data was collected through interviews with selected DFI’s to understand how they structured, developed, and maintained financial relationships with institutional investors. The other portion of the research assessed the landscape of existing institutional investors currently investing in emerging markets. The team researched and quantified the current players investing in emerging markets. The team also analyzed the full universe of players and tailored to the specific client needs. The team presented the, legal and financial restrictions, hindering capital flow from institutional investors in emerging markets.
The team concluded that DFIs should tailor products to return needs of institutional investors. There are those institutional investors that can accept concessions on their returns when some observable impact or development is a component of the investment, as all DFI projects should be. However, the challenge to attract investment to low return high risk projects remains.