Development finance institution
A development finance institution (DFI), also known as a development bank or development finance company (DFC), is a financial institution that provides risk capital for economic development projects on a noncommercial basis.
As of 2005[update], total commitments (as loans, equity, guarantees and debt securities) of the major regional, multilateral and bilateral DFIs totaled US$45 billion (US$21.3 billion of which went to support the private sector).
DFIs can play a crucial role in financing private and public sector investments in developing countries, in the form of higher risk loans, equity positions, and guarantees.
DFIs often provide finance to the private sector for investments that promote development and to help companies to invest, especially in countries with various restrictions on the market.
Some development banks include socially responsible investing and impact investing criteria into their mandates. Governments often use development banks to form part of their development aid or economic development initiatives.
As of November 2020, development banks and private finance had not reached the $100 billion USD per year investment of climate financing stipulated in the UN climate negotiations for 2020. However, in the face of the COVID-19 pandemic's economic downturn, 450 development banks pledged to fund a "Green recovery" in developing countries.
DFIs are often established and owned by governments or nonprofit organizations to finance projects that would otherwise not be able to get financing from commercial lenders.
DFIs include multilateral development banks, national development banks, bilateral development banks, microfinance institutions, community development financial institution and revolving loan funds.
Development banks include:
- Community development banks which fund low-income areas in the United States
- International financial institutions conducting development-oriented finance on a bilateral or multilateral basis
- National development banks are government-owned financial institution that provides financing for economic development.
- Multilateral development bank are development banks set up by a group of countries and often operate under international laws.
- Dirk Willem te Velde and Michael Warner (2007) Use of subsidies by Development Finance Institutions in the infrastructure sector Overseas Development Institute
- "Banks around world in joint pledge on 'green recovery' after Covid". the Guardian. 2020-11-11. Retrieved 2020-11-12.
- Andrea Levere, Bill Schweke, and Beadsie Woo, Development Finance and Regional Economic Development, Washington, DC: CFED, July 2006