DEVELOPMENT
“DFIs can act as ‘pathfinders’ for markets, using their presence to open up and influence the flow of development capital to segments of the economy where there is a funding supply-demand gap.”
Marife Apilado, Manager, Portfolio Management Division, Asian Development Bank
OPEC Fund Quarterly : How can DFIs help resolve global and regional crises? Marife Apilado: Given the standing that DFIs have and their knowledge and advisory capacity, I think they’re well-placed to influence policy frameworks toward sustainable and resilient solutions. For example, they can design the right incentives together with governments and create the right growth catalyzers, support and safety nets for vulnerable and priority sectors. OFQ : What exactly are these “vulnerable and priority sectors”? MA: That depends on what kind of crisis we’re trying to address and varies from context to context, according to di ff erent geographies and countries. So, for example, if the priority sectors are small and medium- sized enterprises (SMEs) in lagging regions of certain countries, we can help those governments design the right incentives to make sure capital flows into those priority sectors. Several MDBs, including ADB and the OPEC Fund, have public sector and private sector operations. We try to provide support on the public sector side to yield fruit on the private sector side by creating incentive mechanisms and proper regulatory frameworks. For example, by working with governments to influence the flow of capital into
OFQ : How far should DFIs align in terms of philosophies, perspectives and (perhaps most importantly) planning? MA: I think it’s very much needed. More can be done to create more venues for conversations, discussions and planning among DFIs. There is already a good number of gatherings that occur regularly. I think we need to deepen those discussions to ensure that we’re not only responding to the most meaningful needs of developing member countries, but doing so in a manner that is e ffi cient, responsive and cohesive. I think the philosophies are generally aligned, although risk appetite and execution can vary significantly sometimes. It’s not necessarily a bad thing and at times it cannot be avoided. But I think we should avoid situations where DFIs are competitively pitted against each other because that may not be e ffi cient. We need to establish alignment and cooperation in such cases, because I think the needs of the market are so vast. There’s really no need to outbid each other for mandates. Rather, I think more can be done on how we can leverage on each other’s work, to make it a time and cost-e ffi cient process, such as in the case for example of mutually cooperating in common due diligence, legal documentation and reviews and cost-sharing.
certain sectors like renewable energies or food security using upstream and midstream solutions to yield dividends on the downstream side. OFQ : Given the reduced risk appetite in markets, how much should DFIs step in and address market gaps? MA: Given their specific mandates, DFIs can act as “pathfinders” for markets. They can use their presence to open up and influence the flow of development capital to evolving but impactful segments of the economy where there is a funding supply- demand gap until such sectors become mainstream and sustainable contributors to the economies. This in itself presents a very strong case for financial additionality. But a DFI can only provide this if its risk appetite is aligned to the development mandate. So it’s key to have risk management o ffi ces embedded in institutional strategy discussions and contribute, align and even co-own the development agenda. That’s not to say that DFIs should finance loss-making ventures and burn capital, but rather to support important but potentially viable and impactful or emerging sectors with patient capital, based on a strong cogent view on the midterm viability and sustainability of these capital- starved ventures or sectors with high development impact.
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