Harnessing Institutional Investment and Finance for Development

[Rachell Akuffo]
Hello and welcome to the 2023 Annual Meetings of the World Bank Group and IMF. I'm Rachelle Akuffo, Anchor for Yahoo Finance, and we are here live from Marrakesh, Morocco. Now, before we start, I want to acknowledge the devastating earthquake that took place in Morocco last month. At this very difficult time, we are here to stand by Morocco and its people. Now, over the next hour, we'll be looking At the opportunities and challenges for mobilizing more institutional capital and bank lending into emerging markets and developing economies. Now you can share your thoughts on this topic at any time using the #WBMeetings and of course please send us your questions either online at worldbank.org or in-person using the QR codes that you'll see displayed in front of you. Now today's development challenges are enormous, yet only a minuscule amount of the overall capital held by private financial institutions flows into emerging markets and developing economies. Global banks, institutional investors, and asset managers hold multiple times the capital of global development banks combined. Now, later in the program, we'll have a panel discussion on the essential role that the private sector has to play in this issue. But for our first discussion, let's look at what it will take to attract more private sector investment in developing countries and highlight what multilateral development banks and others can do to increase institutional capital and bank lending to support growth and reduce poverty. First, please join me in welcoming our first guests here, Suni Harford, President of UBS Asset Management, and Makhtar Diop, Managing Director of the IFC. Please, a welcome for them all. 

[Applause]
So Makhtar, let's first start with you. Finance is one of the most critical levers for sustainable development and economic growth. How can we dramatically increase the flow of capital to emerging markets? 

[Makhtar Diop]
Thank you very much. Indeed, we have this challenge. What I will say is a mix of what we are hearing from the market, from what I experience, my colleagues who are working on capital market every day are telling us. We have two interesting points. We were in Italy recently having a meeting with the institutional investors and asking them the question, What would it take for you to invest more in emerging countries? More recently, the President of the World Bank Group, Ajay Banga, set up a private sector lab, which is chaired by Mark Carney and Shriti. Shriti is the Chairperson of 

[Prudential], and Mark Carney, I think a lot of you know what he has done and he's doing It includes more than 15 CEOs of a company in the world, the largest investors. The question is what the World Bank group can do to help you invest in more countries. These have been two important gatherings which are informing us beyond our own knowledge. What we have heard? First is size matters. When you talk to institutional investors, small project is not something that they can really focus on because they need size, they need scale to be able to invest in some part of the world. When we are faced with small economies, it's a challenge because you have regulatory frameworks which are very different from one country to another, and you have the individual country which are not large enough to attract investment for that size. The second thing they're telling us is uncertainty investment, uncertainty on the regulatory framework, on the political situation, and at some time they don't have also the resources to look at some small markets to better estimate and price the risk. They need institutions like ours, which have the foot on the ground to be able to do that, and that's what we heard. We are currently in the discussion of the private sector. I've heard two important things that the market is telling us. What can we do more on guarantees? Guarantees being not only political guarantee like MICA is offering, but also commercial guarantee that other parts of the World Bank Group are offering. There is also a need to see how we can syndicate a little bit all these offerings on guarantee so that the private sector can have one-stop shop to address it. Secondly, on size, we are developed what we call the MCPP, which is a co-lending platform that we have developed which allow us to go to the market and basically raise money and do investment, co-investment with them, and in areas where we can guarantee a certain level of return. We have different avenues, but what came out very strongly is size matters, regulation matters, and we need to do something about de-risking investment in some part of the world. 

[Rachell Akuffo]
Thank you, Makhtar. To build on that, obviously, you need the will to want to invest in these spaces. What is needed to help encourage more investors to allocate private capital into emerging markets? What are some of the most exciting investment opportunities that you see in emerging markets? 

[Suni Harford]
The good news is there are some really exciting opportunities, and I think it's everything that Makhtar just spoke about. Investors are willing to take some level of risk, but the uncertainty around political stability, for example, policy stability is one of the driving issues. One of the key ways we see to drive capital into emerging markets is to pick long-term trends that you know are going to be there. There's a level of certainty when you look at something, for example, sustainability. I'll give you a fun example of that. Most of you might not know this. Cocoa is very, very difficult and it's not grown very sustainably around the globe. There's a tremendous demand for sustainable chocolate. Cocoa is only grown, I just learned this, within 10 degrees, give or take, around the equator. You're generally talking about emerging markets when you're going to develop in cocoa. You know people want cadmium-free cocoa. There's a trend there. If you want to be sustainable, if you want to believe in the world growth and the demand for chocolate, then you can find where you might invest in cocoa plantations. There's a driving trend that would get you interested there. What you need in order to do that is the government willing to let you come in and develop that property, that land, that factory, it provides the drives and whatnot, but you need them to give you certainty that you're going to get the permits that you want as you develop, that the permits aren't going to disappear three years into an eight or nine-year development project. Some of those things you picked the long-term trend like that. The other thing that's really exciting out there and is starting to grow is blended finance. Those of you not familiar with finance, it's taking the idea of a tranched investment and you're separating out the different risk categories. Generally speaking, it's supported by philanthropic capital, concessionary capital, and then regular investable way capital. By taking government support and putting it as generally the philanthropic, their social programs that they're going to develop, then you bring in private capital that's also concessionary. They don't expect a high return, if any return, in their investment. When they take first loss positions in projects that are on the ground in emerging markets, then investors can come in with a great deal of certainty in terms of some marginal or market-related return, call it 5, 6, 7%, that makes it acceptable to invest. So a couple of really neat ideas coming out of the markets right now. 

[Rachell Akuffo]
Certainly that need for certainty that you bring in here. Makhtar, to build on that then, how can multilateral development banks such as IFC facilitate and substantially scale more private capital investments and lending to emerging markets and developing economies? 

[Makhtar Diop]
You said exactly the point. I really need to say, this is the reality that people are facing on the market. Let me give you an example of what we can do. Today, there are a lot of innovation going in that area, but we need to scale it up to accelerate it. For instance, we have assets which are held by our colleagues from the IBRD, for instance, investing assets linked to transmission lines which are amortized for a long period of time. There is an appetite for the private sector to have that asset offloaded and taken by the private sector. But it requires a certain number of elements in terms of certainty because the risk that we are bearing that we can handle as an IFI, as an International Development Finance Institution, the private sector needs more certainty because they don't have the sovereign part of what we are doing. We need to bring them and to describe the first loss guarantee or these type of instruments. We have also—and let me also be candid on that. We need also from the government side to have some visibility. If we want to have scale, we need to have not one asset here and project here. We need to have a larger number of projects to be assessed, to be financed, and have a portfolio approach. We have, for instance, recently been signing an agreement with the government of Egypt whereby they're telling us there is a large number of assets that the government owns and that we would like to have the private sector coming. What we also need to address from the countryside is that a contract renegotiation is very common in OECD countries. But in emerging countries is often conflictual, an often source of tension, which raises the risk of perception from the private sector. If an investor, if she wants to invest in a country, but she hears that the neighboring country, where contracts are renegotiated, they are not renegotiated following the rule of the law and there are expropriations of things like that, she will not come and invest her money in it. We need to address those issues and separate them for the political processes. You can have elections, you can have change of regime. That's totally normal in a country. But there are some things which can be intangible for people to have a long-term horizon and make those decisions of investment that will be moving a large amount. Lastly is that we have often small markets and I want to emphasize it. If we have regulatory frameworks which are very different from one country to another, an investor who wants to mobilize a lot of resources cannot repeat all the times the negotiation, the legal process. That's why if you see the time it takes for developers and investors to put their money in an emerging market, a part of it is a lot of negotiation on the regulatory front. Standardizing all these help a lot. I would just try to give you a very good example of what I'm talking about. When we're talking about renewable energy in Africa, we are facing that problem. The team here worked very much towards standardizing the contract. You have a standard contract that anybody who wants to invest in renewable energy in Africa, in the solar, knows which documentation, and the lawyers don't have to spend hours and months and months negotiating, and it accelerates, it brings transparency and people are able to use auction and lower dramatically the price of electricity. This is the kind of things that we need to multiply in various sectors to be able, to my view, to attract more investment, and that's what we are trying to do right now. 

[Rachell Akuffo]
Certainly that consistency and transparency, usually the green light for a lot of investors. Something else I want to touch on though is sustainability because you talked about long-term trends. This is a long view that we're taking here. Suni, how do you think about sustainability when it comes to investing in emerging markets? 

[Suni Harford]
It is one of the greatest opportunities that exists because it is the long-term trend on so many multiple fronts. First of all, the whole world has to get involved with it to solve the issues that we have. By definition, you're going to be playing in the emerging markets if you want to make a difference and if you're going to drive these things. I think the upside potential in emerging markets, the new frontier on new tech, green tech, really exciting. Every time there's a whole new market such as sustainability, it can develop anywhere. Nobody has the ownership of that. What Makhtar was saying, again, if you get that stability or transparency around documentation, that's a big one. The other is data. China is a terrific example. Another long-term trend, if you think about sustainability, is healthcare and the demographics around it, life sciences, the development and R&D around new drugs and whatnot, but you need data that has to be publicly available and has to be consistent. That's another one that's going to drive a global trend for these investments. Many emerging countries don't have the requirements needed for investors to have the data that they want. That's something that the governments can do and companies can do if they want folks to invest, they're going to have to start providing more data. 

[Makhtar Diop]
If you allow me— 

[Rachell Akuffo]
Yes of course. 

[Makhtar Diop]
I just want to build on the very good point that Suni made about the data. We are about to 

[Unintelligible]
services initiative Gems, which is providing— A lot of information is available in IFIs, in the IFIs on credit risk. What we are working right now with EIB and other institutions is to make it public. This is a Gems Initiative, and we hope that in the coming month, quarter one next year, current year, we'll be able to make it available. We are in a process of tendering the entities that will be managing it outside the DFis, and I think we'll be filling some of the gaps that you are managing. We didn't talk about the FX risk, but there's another risk that by itself will require a lot of conversation about local currency and so forth, and where it requires not only private sector intervention, but a lot of good macroeconomic policy to be able to offset that risk for investors. 

[Rachell Akuffo]
Thank you. I appreciate you both adding that clarity and really setting the scene here for us on this important topic. A big thank you there to Suni and Makhtar today. Thank you both so much. 

[Suni Harford]
Thank you very much. 

[Makhtar Diop]
Thank you. 

[Rachell Akuffo]
We appreciate this insightful overview. Thank you. 

[Applause]
Now, remember that throughout this program you can share your thoughts online using the hashtag #WBMeetings, and of course, you can submit your questions online at worldbank.org. Now, before we get to our next discussion, let's remind ourselves of the scale of the challenge that we face. Now, only a minuscule amount of the overall capital held by private financial institutions flows into emerging markets and developing countries. Mobilizing more private capital is essential to addressing the enormous challenges that these countries face. Now global banks, institutional investors, and asset managers hold over $400 trillion in assets under management. Now that is multiple times the capital of global development banks combined. In fact, reallocating just 1% of global private assets to emerging markets and developing economies each year could close the annual $4 trillion SDG investment gap. Now it's clear that the private sector has an essential role to play in achieving the SDG. So for more on this, let's welcome our next panel, Dr. James Mwangi, Group Managing Director and CEO of Equity Group Holdings, Executive Chairman of Equity Group Foundation, Nezha Hayat, CEO and Chairperson for Morocco's Capital Markets Authority, Head of ESG enablement at T-Rowe Price, and Daniel Zelikow, Chair of Governing Board of J. P. Morgan Development Finance Institution, and Vice Chair of J. P. Morgan Public Sector. Welcome to you all. 

[Applause]
Daniel, you're going to be in the hot seat first. Now you have a good sense of financial systems, regulations, and pools of capital that can be channeled into emerging markets, as well as the constraints to mobilizing more private capital. Dan, what can be done to help mitigate some of these constraints? 

[Daniel Zelikow]
Well, thank you very much. First of all, I want to align myself with some of the comments that were just made with the previous panel, which is, the more basic problems are the macro risks. That is to say, if you look at the project or the corporate risks in any emerging market country, they are typically lower as a share of the risk premium than the underlying sovereign risk. So that the kind of work that's being done by policymakers with the support of the official institutions to improve fiscal monetary policies and then to work on sectors to make them more investable where there might be certain distortions, that's absolutely critical in bringing down those risk premia to attract foreign investors and local investors. That would also extend to getting judicial systems operating properly so that there's enforceability of contracts and some predictability in how they are enforced. But another big gap, which I think was spoken of less in the previous panel, is vastly increasing the number of bankable projects. But I think it's generally recognized that there's a lot of institutional capital that's prepared to venture into emerging markets, if only there were some way of taking the risk. But there aren't as many projects which kind of represent some meaningful and viable risk reward ratio that foreign and local investors can express their views with. But at the end of the day, there's no magical solutions here. In the meantime, our observation is that the international community is doing various workarounds as the policies get improved. What have we done at J. P. Morgan to try, in our own way, to foment greater cross-border investment into the emerging markets? In 2020, we launched an effort called The J. P. Morgan Development Finance Institution. Now, it's not nearly as fancy as it sounds, and what it is essentially is to use the very same methodologies that the world's top development finance institutions in the official sector use. In fact, we had an MOU with the IFC. They detailed an employee to us to help apply their methodologies for understanding what constitutes development finance, what constitutes the kinds of predictable outcomes that they're going for, applying it to our much broader range of products and services, and for that matter, our much larger balance sheet. What we found is that once we started using this way of thinking about the world, a few good things started happening. First, we were able to identify no fewer than 75 new investors. That means dedicated impact sleeves of big institutional investors like T-Rowe or standalone funds that were focused on impact. Those investors now are coming into these new deals. We wanted to find a way of those investors who want not just financial returns, but they want to have impact. There's a growing appetite for that. You heard it from the previous panelists talking about this is a long-term trend. We see it as well. Then we… We found that using this same methodology, we were doing about $100 billion of transactions a year. Again, it's not because we're so clever, it's just because we're so big. Then what we're also trying to do is, we found that this method turned out to be very popular with the finance ministers who were doing sovereign financings and corporate CEOs in the emerging markets because it allowed them to show what they were planning to do with the capital. What were the specific impacts they were going for? In a way, they were enthusiastically adopting a greater degree of accountability for the use of other people's money. What we've tried to do is now socialize this to the broader investment and banking community. We've got a working group that's working right now with at least 30 different firms involved, and some of them are sitting in the room. The idea is to come up with what are the appropriate standards, what's an effective monitoring and evaluation framework, and then finally, what's the right reporting arrangements so that investors can see what they're buying. 

[Rachell Akuffo]
Appreciate that. Just a reminder to the audience, please silence your cell phones, we appreciate that. Thank you so much. James, I want to build on that because Dan was talking about the risk-reward ratio when it comes to investing. From the perspective of an emerging market's issuer lender, what are the main challenges that you face in obtaining more sustainable investment flows for both your bank and your projects that you finance? And also what do you think about some of the ways discussed earlier for MDBs, Multilateral Development Banks, how they might better enable these flows? 

[James Mwangi]
Thank you very much, really great question. I think one of the biggest challenges we have had to contend with is the issue of standard-owned projects. People feel we need a coherent ecosystem kind of financing, and that has prompted us to lead it and bring all the partners together and say, Why don't we have a plan of collaboration between us? And we have come, I think, 12 development banks and six governments. We have come with a plan for the development of Eastern Central Africa. We are calling it the African Recovery and the Syrian Plan. So we then know what is the role of government in creating an investable environment. What is the structure? So the development banks take the long-term components, the commercial banks take the short-term commercial components. Then you bring others who de-risk projects either through guarantees, the others who wants to give grants to minimize the cost. As a result, you are able to deal with the risk of pricing or cost, you're able to deal with the risk itself and you're able to deal with tenure. And then because it's collaborative, you have Bread Financial components in it and you have everybody playing to their strength. So you mitigate by bringing the strengths of the actors together. 

[Rachell Akuffo]
That certainly makes sense. Helps with that consistency, as you mentioned there, with that ecosystem. Poppy, I want to bring you in here because we heard in the earlier panel from Suni talk about the opportunities for emerging markets. What strategies can be deployed to engage institutional investors such as asset managers in redirecting their capital towards environmentally and socially responsible investment opportunities? 

[Poppy Allonby]
Thank you so much, Rachel, and also thank you for having me. This is actually my first meeting. It's an absolute delight to be here with you all. There were three things that I was going to mention that I think would help institutional investors, and some of them hopefully were picked up in the last panel. The first is the importance of public-private partnerships. I think these can be really powerful when used well, and there are many ways in which you could use them. It could be in de-risking, which was talked about earlier, and helping provide first loss provision, for example. It could be working between the public and private sector to create more innovative new investment products and funds. Or it could be around building the ecosystem through education or capacity building and thought leadership I think the first thing I would point to is just how powerful, when done well, those public-private partnerships can be. I think a great success story here has been the work that has been done in the Green Bond space and the IFC and others have been instrumental in this. It's pretty remarkable that over just 10 years, this has gone from basically nothing to a $2 trillion asset class globally. I think that's a real great example of what success and scale can look like. First, public-private partnership. The second thing I was going to add was really trying to create investment opportunities and investment products that have good outcomes. I know that sounds obvious, but if you can create good experiences for investors, then that builds positive momentum and one thing leads to another and they'll come back and invest again. Looking at sustainability, what does that mean for me? I think a good outcome for investors means a good financial competitive return. I think it also means having robust, credible, sustainable outcomes for those sorts of products. You can't risk in this space like greenwashing. If you do that or if another peer does that or has really bad financial returns, then that really limits the opportunity going forward for those that want to follow. It's easier said than done, but I think there are a few things one can do there. Making sure the partners and people you work with have got the right credentials, appropriate experience, making sure you have the right risk controls and frameworks in place. Yes, first, public-private partnership. Second is really around creating positive investor experiences. And the third—and I won't dwell on this because it was mentioned earlier—is really around scale. A company like ours, we invest money on behalf of other clients. It's not our money. Many of those clients, those end asset owners are large and they want to make sizable investments. They want to deploy and allocate capital at scale. They don't want to be the only investor in a fund. When we think about solutions and think about investment products, on my mind is always, how can we not immediately, over time, scale them? 

[Rachell Akuffo]
You raise an interesting point, especially about the investor experience and really building some confidence with these concrete examples. Nez, I want to bring you in here. As we've been discussing, capital markets play a key role in connecting both international and local institutional capital to businesses that need it. How can capital market regulators in developing countries help improve the environment needed for such investor flows to grow? 

[Nezha Hayat]
Well, thank you, Rachel. Thank you for having me in this panel and giving me the opportunity to explain what we've been doing in Morocco and also in terms of capital markets regulation but also in the region, as I also shared the African and Middle East Committee within IOSCO, our international organization, as what previously mentioned by the Managing Director of IFC, regulating or regulatory matters when it comes to attract private capital through the channels of capital markets into projects within our emerging countries. As many developing countries, we are basically bank-based financing economies. How regulators that have as main missions to protect investors ensure good functioning of markets, what's their role, what are we doing here? This is exactly the question that I asked myself to my team once I was appointed by His Majesty seven years ago. It goes so fast. What markets do we want? I couldn't just be a watchdog. How could our capital markets? Since we have a stock exchange, a Casablanca Stock Exchange that will be celebrating its 95th year next year, created in 1929, when others were struggling, what capital markets do we want? Because we have issuers, we have 76 listing companies, more or less double number when it comes to issuers. Why couldn't we have more? We asked ourselves, how can we attract both investors, local and international, but also how can we ease finance access to all kinds of companies? As a regulator, our first mission was not only to have a very clear regulating framework, very comprehensive, but also evolving. If later we have the opportunity to talk about sustainable finance, I will definitely, if I have some time to talk about our experience where IFC has been contributing as well. Very comprehensive. And also another idea that was mentioned like what is what is needed is the standards, international standards, comprehensive framework, adapting it to the local economies, but also taking into account international standards in terms of information, transparency, definition, and also by creating a diversified, large range of products. We will be launching derivatives market early next year, hopefully, but we have a very dynamic asset management industry and we are also revisiting the legislation to adopt securitization, also explaining the role of private equity, especially to help the familiar companies grow. With all this we are trying on one hand to protect investors and putting the rules, but also giving flexibility in their rules according to the market. For instance, we have an SME market. Obviously, we're not asking for the same level of information, but still we do need a minimum to ensure investor protection. Also maybe, and why did I talk about evolving legislative or regulatory framework? We need to tackle innovation and not to react. One journalist was asking me yesterday, Well, obviously, you might have many more IPOs to come, many private equity firms, that we call, that you'll have to license. How will you organize with yourself? I said, “No, it's already done.” We anticipated not only in term of organization, governance is important. We're an independent authority, which is the choice that Morocco made to have three independent regulators to supervise the financial system, and anticipating and always tackling innovation. How is... Of course, and putting in place all the measures to control and to supervise, but also having a very comprehensive framework. This is where financial education and communication is key. Maybe my last observation will be on the size of the markets. It's true. Our markets— We're second, we're still very small. I think that even the first market in Africa is much smaller than developed markets. We do need to have integrated markets. What does it mean? It's not a merge of markets. It's making sure that our rules, the principles are similar in all markets. Not only through platforms, I mean, there's a linkage project, a platform that enables an investor to buy or sell shares in different stock exchanges within Africa using the same brokerage, but also to make sure, and this is why we have this regional committee, why we sign agreements, to make sure that we have the same principles and the same level of regulation, and adapt it, but to have a continental, uniformized standards of the continent. 

[Rachell Akuffo]
So standardization seems to be that common theme here that really does inspire trust for investors. We're just going to take a beat here because of course, I've been encouraging you all to submit your questions online or using the QR codes that you can see in front of you on the chair. Now I'd like to turn to a few of those questions that have come from our audience who've been posting questions online before and during this event. This first question is for Poppy. Poppy, what role can impact investing play in attracting private sector capital to projects aligned with the SDGs in emerging markets and developing economies? Are there any notable success stories in this regard? If you can give us one or two? 

[Poppy Allonby]
Yeah, absolutely. Thank you again, Rachel. First of all, impact investing is really what you just described. It's dedicated funds or investment vehicles where those underlying investments are typically aligned with SDGs and generally have frameworks and assessment and measurement around them. In my company, T-Rowe Price, we've made quite a lot of commitments to impact investing. We have a range of products, investment products, spanning equities, fixed income, and more recently, multi-asset. We obviously think that this is an interesting area and has a role to play for sure. But one thing I would urge us all to do is not limit SDG-aligned investing purely to impact funds. In our case, we often own SDG-aligned investments in our mainstream portfolios too, because in many cases we think they are good investments, regardless of the SDG alignment. If you look at, for example, our fixed income book of business, we probably got... Well, we do have more dollar investments in SDG-aligned underlying securities in our main book across the whole book than just the secure impact fund. They can play a role more broadly in some cases. That being said, I think dedicated impact or even thematic funds have an interesting role to play to direct capital towards more specific themes and focus areas, particularly more on the thematic side. That can be really interesting and provide our end clients with exposure to interesting growth themes that they might not have exposure to in their broader portfolio. For me, there's been some successes. We've seen successes, particularly on the climate clean tech side. But naturally, just how I am, I'm always thinking about what the next thing is, what are the next areas, or what are the areas that haven't attracted so much capital and what might be in the future, there are a number of things that I personally keep an eye on. I think the work the IFC has done on the blue economy is really interesting, looking at clean water, looking at oceans. This is potentially a huge market. It impacts health, it impacts the economy, it has a potential for economic growth, and it has a potential to have a positive impact on climate too. We're closely... It's an area that we're closely watching, and maybe we talked about green bonds earlier, blue bonds might be where green bonds were a decade ago. 

[Rachell Akuffo]
There you go, some things to keep in your spotlight there. Now, I want to move to this next question. This one is for Nezha. The audience member asked, How can regulatory and policy frameworks be adapted or improved to encourage more private investment in these regions while ensuring responsible and sustainable development? 

[Nezha Hayat]
Well, thank you. Well, sustainable finance has been one of our priorities since I arrived more or less at the same time that COP22 was held here in Marrakesh, and we have a country that is really committed to sustainable development. We were trying to find our way to see what could we do as a regulator to promote sustainable financing through capital market at a time when regulators were considering it and this is just like another more product. That was our first contribution, and with the contribution of IFC, we worked in order to encourage green bond issuers and the first issuances were to finance the solar plants and really big sustainable infrastructure projects. We worked on a guideline because we wanted to understand to identify what is green and the procedures. We did it with the cooperation of IFC because we wanted to make sure that we have included all the international requirement and the international standards. We started by guidelines to encourage, to explain, and to have issuances. And some multilateral MDBs were invested in some of these green bonds. After those guidelines, then we started including the specificity in our regulation in our rule book. Today, we have been able to promote by not only green bonds but sustainable bonds, municipality bonds that are important in our country where regions have their own resources but their own ambitious plan to develop. We've had one municipality bond issued by the Agadez region, not far from Marrakesh. We even issued a gender bond to explain that regulatory matters, to explain what are the rules to avoid greenwashing. Then little by little, we put the requirements within our rulebook. We also have been one of the first markets globally to make mandatory ESG reports. It also requires to advise and share and explain to the issuers, to the companies that either/or both listed or issuers the benefit of these reports and the first mandatory report was due during lockdown and they all managed. We helped them, we answered the questions and they all not only published their financial accounts. Remember, lockdown was in March. It's March, April when you have to publish your annual reports. But some are calling us saying, “I might need one week more to finalize my fourth ESG report.” But you have to explain. That's what we did. Also, we work within a national roadmap, a financial roadmap to promote sustainable finance. So many infrastructures need to be financed and also, especially after the earthquake and the ambition, their ambitions, the recovery plans that will probably require private capital. I hope that this private capital can come through or even public through the channels of capital markets. 

[Rachell Akuffo]
It's very interesting what you talk about sustainable development, really, as a positive value added differentiator, whether you're an investor or an entrepreneur. James, I want to bring you in here because a lot of people, they like to see some positive examples before they dip a toe in this space. Can you share some examples of successful partnerships between private financial institutions and development banks in mobilizing capital for EMDEs? And what lessons can be drawn from these experiences? 

[James Mwangi]
Thank you very much. Let me give three examples. The first one is thinking about refugee financing. We teamed up with IFC and said it would not be levering the field if we exclude the refugees because of their status. And the best thing we can do is to support them to work themselves out. Essentially, working together with IFC, we [added] up equity providing credits to the refugees using its infrastructure and IFC providing a risk sharing guarantee. Through that mechanism, we have been able to set branches in Kukuma, Dada, the biggest refugee camps in the East African region. And we are now extending that to Uganda to DLC simply because the mechanism works. The second one is impact investment. We felt that education is an equalizer and a distributor of opportunities, and we should ensure gifted kids from low income families or humble families are able to access the best education. And we started a program called Wings to Fly to bring in a scholarship program to further the education of those kids. To date, together with the World Bank, Mastercard Foundation and Equity Group and others, we've been able to put through 60,000 kids through their education, 22,000 are now at a university level, 1,000 have got global opportunities to study in world-best universities. That collaboration between the private, public development banks has worked. The last one I'll give is a collaborative effort between the Kenya government, Equity Bank, and KFW of Germany, the Development bank of Germany. Together, we've been able to fund 24 irrigation schemes. The government comes with a grant to lower the cost of the project. KFW comes with long-term financing and equity to do the project delivery and provide the short-term working commercial loans. And the last one maybe, which is of a public good, is where we are working with IFC to support the government of DRC to develop a capital market within DRC. Essentially, collaboration… Deliberate, intentional effort can deliver on financing development. 

[Rachell Akuffo]
Appreciate that. It's always helpful to see some of these concrete examples of where this investing can lead and the number of lives that can be impacted here. Dan, I want to bring you in here for the next audience question. They ask, How can development banks and global funding agencies collaborate more effectively to provide financial support and resources to encourage and sustain innovative agricultural businesses that aim to address food security, sustainability, and economic growth? If you could speak more broadly to that collaboration with [Unintelligible]. 

[Daniel Zelikow]
Yeah, thanks for the question. We are looking at food security very closely, but I think it's probably better to answer that question more generally. First thing I want to say is that the world's official sector development bank have brought an extraordinary talent pool under their roofs. It's probably something that we will never be able to replicate again. The question is, how do we deploy that talent pool? The first thing I would say is we have not given them the financial resources that I think they will require given how much we've asked them to do. I do think that the governments should look towards a very much larger financial capacity for these institutions. Point one. Second is that in the meantime, there are certain reforms that are being proposed and can be made, which we think make a lot of sense. One of them is to focus more on the poor and the poor in the lower, middle income countries. Second is to start having tenors on loans that are more aligned to the program or asset that's being financed. It makes a lot of sense to make a 30-year loan to finance a school-building program. It may make less sense to make a 30-year loan to finance a five-year fiscal reform effort. That will result in a greater recycling of the resources. The experimentation that's been going on, which we think has been extremely successful with individual institutions swapping their exposures amongst one another, makes all the sense in the world to us. Hybrid capital makes a lot of sense in terms of expanding the lending capacity. But then one of the things that I think has not been given adequate consideration in the overall agenda is the non-financial. If you agree with me that the World Bank and the IFC, for example, have extraordinary talent pool, what we really want to do is support those individuals in helping countries with the development mission. Which is not necessarily a financial one. If you look at cross-border financial flows alone, in 2022, which was a really big year for development finance, gross flows of $110 billion. All of the world's development institutions, including the big multilaterals. By contrast, remittances were 500 billion and FDI was 700 billion in that same year. Then if you look at it on a net basis, net of reflows, total resource transfers by all of the world's development institutions was $45 billion in '22. That's against a global GDP of the targeted countries of 55 trillion, one twelve hundredth. As I say, these are not big institutions in the scheme of things. How do we get the bright minds working for development in a way that's even more effective even without that money? I think one has to focus on the project lifecycle first. That is identifying projects that make sense, prioritizing them, helping countries no matter what they need the help on, whether it's with the RFP process, whether it's with contract negotiations, evaluating RFPs, the nitty gritty of actually getting projects prepared so that they could be financed. Secondly, break the link between that work and the lending. If the project can be prepared and it's financeable by the private sector, let it happen. Don't necessarily have to connect MDB or DFi lending if it was possible to help with just that project preparation activity. Third is to externalize. A lot of the good work that these institutions are doing for their own internal processes, be it on ESG, procurement, anti-corruption issues, their vast local knowledge, the fact that they have thousands of people on the ground in developing countries, that strikes me as an incredibly valuable resource for the world, not just for the institutions. Try and externalize that to a greater extent and maybe even commercialize some of it. Finally, I'd say there's got to be some change of process. I was a manager of one of the development banks some years ago, and I can say that to prepare the average infrastructure project took about two and a half years, three years. One was when it was going quickly. But that, for most lending-- Infrastructure maybe you can get away with that. For most lending, you can't go that quickly. Maybe part of the challenge here is that the way the institutions are set up, there is a lot of governance around project preparation and presenting things to the respective boards of these institutions. Even staff incentives seem to be oriented around financial deployment as opposed to development metrics. My suggestion would be maybe adopt a page out of what a big global bank would do like ourselves, which is we reward people for doing more with less capital, not more capital. In other words, can you measure the staff contributions by how much development they get done, what the outcomes are for a unit of capital deployed? That seems to me to be a much more appropriate network for capital starved institutions right now. 

[Rachell Akuffo]
Thank you, Dan. I know James, you wanted to chime in there on Dan’s comment. 

[James Mwangi]
I just wanted to say collaboration and partnership can be taken above the level of a loan to a portfolio level. Look at equity, those who know equity, 72% of the loan book is in micro, small and medium enterprises. If you look at that portfolio, it is a collaboration effort between IFC, Africa Development Bank, Proparco, AFD, KFW, all of them coming together and collaborating to create an SME portfolio. Essentially partnership and collaboration brings the capability of all these. The best thing is then you create a consortium and the risk is shared and people then take the [prey] they want. Do they want SMEs in agriculture, SMEs in the lead economy, in manufacturing or in the value chains? We can collaborate at very different levels. 

[Rachelle Akuffo]
Yes, Dan. 

[Daniel Zelikow]
Just following up with one thing that James just said, one of the areas where I think that there's clear opportunity to reform is in just identifying what the development problems are themselves. For example, when I worked at the Inter-American Development Bank, we used to spend a year every time there was an election doing a country assistance strategy. Meanwhile, the World Bank and others were doing a country assistance strategy, detailed work on identifying the problems and what can be done about them. It seems to me, firstly, does it really have to be aligned with the political cycle when the problems are ongoing? Secondly, why does the World Bank need its own analysis of what the endemic problems are in the country and the IDB needs its own? Can't there be a collaborative effort where the various official institutions involved in a particular country's assistance come up with one country assistance strategy and just live with that. 

[Rachell Akuffo]
I think that speaks to Nezha, what you were saying earlier. I know we only have a little bit of time left. If I could get your 30-second takeaway and Poppy yours as well, please. Nezha? 

[Nezha Hayat]
Yes. No, I just wanted to add, it's a message for the MDBs that are having their annual meeting here. Whenever they finance projects in countries, either as a unique investment, a unique finance, or with other investors, if they could encourage more capital markets, instead of only financing lines, use the bonds and the bond issues, which would first promote our capital markets, syndicate the financing project through these bonds issues, and also that will help also scale up the volumes and our bond market. They do it from time to time, but it is not the easiest way to do it. Usually it's only financing credits. That would be my message in order to help do both, invest and promote capital markets. 

[Rachell Akuffo]
Okay, and last word to you, Poppy. 

[Poppy Allonby]
I think that my fellow panelists have covered this very well, so nothing more to add, except, again, just to recognize the work that has been done by the IFC and others to open up new markets and areas. 

[Rachell Akuffo]
We certainly appreciate all of your insights, the examples, and the opportunities that they lay out as we can move forward from here. So a big thank you to our guests for joining us to discuss this important issue. And that brings us to the end of this event. We hope it's been informative and engaging for you. And you can, of course, watch the replay of this session and our other events at worldbank.org/annualmeetings. And, of course, please continue sharing your comments online with the #WBMeetings. We'd love to hear from you. Thank you so much for joining us.

00:00 Welcome | Harnessing Institutional Investment and Finance for Development

Panel discussion | Makhtar Diop, Managing Director, International Finance Corporation (IFC); Suni Harford, President of UBS Asset Management

02:08 How to increase the flow of capital to emerging markets
05:34 Encouraging more investors to allocate private capital into emerging markets
08:23 Scaling private capital investments and lending to emerging markets
12:50 Sustainability in investments in emerging markets

Panel discussion | Nezha Hayat, Chair and CEO of Morocco’s Capital Market Authority; James Mwangi, CEO of Equity Group Holdings; Poppy Allonby, Head of ESG Enablement, T. Rowe Price; Daniel Zelikow, Chairman, Governing Board, JP Morgan Development Finance Institution

17:28 Mitigating the constraints to mobilizing more private capital
22:33 Main challenges in obtaining more sustainable investment flows
24:45 Engaging environmentally and socially responsible investment opportunities
28:45 Capital market regulators: Improving the environment needed for investors
36:45 Attracting private sector capital to projects aligned with the SDGs
40:17 Adapting or improving regulatory and policy frameworks
45:25 Partnerships between private financial institutions and development banks
48:43 Collaboration between development banks and global funding agencies

58:55 Closure