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MIGA’s goal is to promote foreign direct investment into developing countries to support economic growth and more.

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Learn about the progress MIGA is making in its mission to support economic growth, reduce poverty and improve people’s lives.

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At the Frontiers of Finance: IDA’s Private Sector Window

Also available in: Arabic | French | Spanish

Amid growing political instability, an accelerating climate crisis, and rising food insecurity, we are seeing a reversal of development gains in the world’s poorest countries. The evidence points to more people falling back into extreme poverty. The resources needed to meet development goals and build resilience to climate change will require trillions of dollars of investment each year. Recent World Bank Group research shows that for the low-income countries that are eligible for concessional finance from the International Development Association (IDA), investment needs amount to nearly 10 percent of GDP—quadruple the figure for upper-middle income countries.

With 60 percent of these low-income countries already in, or facing a high risk of debt distress, and fiscal space severely limited, private finance must play a larger role in increasing critical investments and creating jobs. No government, multilateral institution, or philanthropy can fill the gap alone, and even together they will still fall short of providing the investment required.

A growing role of the private sector will not only be indispensable for emerging from the current crisis, but has been the defining feature of countries that have grown to middle-income status and graduated from IDA eligibility. In developing countries, 90 percent of jobs are in the private sector. Achieving poverty reduction and sustainable development on a livable planet are possible only with private sector investments. Private enterprise is a key player in sectors that deliver essential services—such as agribusiness, energy generation, digital connectivity, and financial services—and that create large numbers of jobs—such as manufacturing, tourism and hospitality, construction, and transportation and logistics. Governments have an important complementary role to play in providing the enabling infrastructure and business environment. They are also central to providing the guardrails to ensure healthy competition between private companies.


Investing in the world’s most challenging markets 

Nevertheless, attracting private finance to the lowest-income and fragile markets is challenging. Macroeconomic instability, weak regulations, poor governance, and political volatility result in frequent disruptions that discourage private investors and increase their perception of risk, raising the cost of project development. Developing projects in these markets takes more time and resources—often double the cost of similar projects in more established emerging markets.

For the poorest countries, it is not enough to implement reforms that provide a level playing field for businesses, create competitive markets, and open economies to investment. Such reforms are necessary, but not sufficient, to enable private investment both at the scale and in the timeframe needed. In countries facing instability and the risk of (or actual) conflict, reforms alone will not sufficiently reduce the risk premium to an acceptable level for investors.

In these markets, concessional finance plays an essential role in mitigating the risk to a level that is acceptable to the project sponsor and to private investors. “Blended finance” uses small amounts of donor funds to absorb some project risk and enable larger quantities of commercial finance to be deployed. Concessional funds can be deployed through financial instruments that absorb some risk, such as guarantees, subordinated loans, equity, or currency swaps, that help make the project bankable and more affordable for investors.

Take the example of a commercial solar power project in Somalia, a country where over 50 percent of the population lacks access to electricity. The IDA Private Sector Window (PSW) offset some of the risk and enabled MIGA and co-investors to proceed, while making sure that electricity tariff rates remained competitive on the market and thus affordable for users.  


Innovative finance, amplified impact

Blended finance has been used in various forms for over two decades, but the creation of the IDA Private Sector Window in 2017 gave IFC and MIGA the opportunity to accelerate their investments in the lowest-income countries. As of March 2024, the PSW has enabled 288 investments in 50 countries. More than a quarter have been in fragile and conflict-affected states, such as the Solomon Islands, South Sudan, and Yemen. See the Annex for the full list of PSW-supported projects.


Projects have spanned nearly all sectors of the economy. Twenty-five percent (of board approved volume) has gone for credit provided to micro and small businesses, 11 percent for developing local manufacturing and agricultural value chains, 15 percent for power, including renewable energy, digital and other infrastructure, and the remainder for housing, trade finance, and health and other services. The PSW enables IFC and MIGA to undertake projects with new clients (52 percent of PSW projects) and enables IFC to support local companies (78 percent of PSW projects).

Consider how PSW and IFC are supporting child nutrition, food security, and jobs amidst the conflict in Yemen. According to the World Food Program, half of Yemeni children under five are at risk of malnutrition. The IDA PSW is enabling the continued provision of safe, fortified staple food products to Yemen’s population even during the conflict. IFC’s $75 million financing package for Hayel Saeed Anam (HSA) Group—one of the country’s largest food producers—has enabled the company to continue operations, safeguarding jobs, and providing nutritious food for the population.

The PSW is having enormous development impact. It has enabled over 4 million loans to micro and small businesses through its support for banks and microfinance institutions. It was also behind the installation of 654 MW of renewable energy capacity, of which 51 percent is in fragile countries; the creation of 1.1 million quality jobs, equivalent to 14 percent of total formal job creation in those countries; and enabling 1.3 million people to access healthcare.

Exemplifying the kind of transformational impact PSW finance can provide is a $3.25 billion investment by Safaricom in Ethiopia’s telecoms sector, which is expected to provide mobile telephony and high-speed internet network services to tens of millions of people. With PSW support, MIGA issued guarantees for investments in mobile money operators expected to help create access for an additional 24 million new subscribers to mobile money services.


Crowding in finance, taking on risk

For the 52 countries that donate to IDA, the PSW is money well spent. Each $1 invested via the PSW enables over $5 of commercial investment. Since inception, $4.8 billion of PSW from IDA has enabled $24.3 billion of investment. Roughly half of the amount has come from IFC and MIGA in the form of loans, guarantees, and direct guarantees to private investors, while another quarter comes from purely commercial/private sources. The remainder of the investment comes from other development finance institutions that can leverage IFC’s extensive country staff and expertise, such as Proparco, British International Investment (BII), and the US Development Finance Corporation (DFC).

The PSW allows IFC, MIGA, and co-investors to undertake higher-risk projects than they would otherwise avoid. For IFC, fully 80 percent of PSW-supported projects have a credit score that is classified as “weak” or “very weak” (equivalent to sub-investment grade, or “junk” ratings by major rating agencies), compared to 40 percent of non-PSW projects. For MIGA, 57 percent of PSW-supported projects are associated with the highest political risk categories compared to 26 percent of non PSW-supported projects in IDA countries for which MIGA extends political risk insurance.

The creation of the PSW has helped expand the pipeline of bankable projects in the poorest countries. IFC’s average annual own-account long-term finance in PSW-eligible countries grew by 21 percent during 2018–2023 compared with the 2012–2017 period, while mobilization of other investors grew by 179 percent. Between FY18 and FY23, MIGA issued an average $1.4 billion per year in PSW-eligible countries, over three times higher than previously expected.

This growth has been enabled by increasing the number of staff on the ground in IDA countries and deploying more “upstream advisory” support to governments, helping them to enact reforms for the private sector to thrive. IFC staff in PSW-eligible countries rose from 267 in 2018 to 349 as of March 2024, a 31 percent increase—compared to an 11 percent increase for IFC overall. IFC’s upstream pipeline in low-income and fragile IDA countries, for projects that require significant advisory work with governments and clients before investments are commercially viable, grew from virtually nothing in 2018 to $4.6 billion at the end of 2023.


Results that make a difference 

Since 2018, IDA PSW-supported projects have enabled large-scale job creation, sustained livelihoods, empowered women, ensured food security, and provided access for millions of people to green energy in the world’s most challenging places. They have also supported the creation and deepening of markets and helped unlock the foreign investment that is essential to sustaining growth.

A recent evaluation concluded that the PSW has matured beyond its “pilot” phase and enabled IFC and MIGA to increase their investments in various countries, enter new jurisdictions, and contribute to mitigating the effects of recent crises. It noted that the portfolio of projects is still young and needs continuous monitoring and nurturing. The presence of additional staff in these countries enables this to work. Additional reporting on the use of PSW funds and further work to integrate use of the PSW into Country Partnership Frameworks may further enhance impact.

IDA countries need the private sector more than ever. Delivering on the World Bank Group’s ambitious goals for energy, food, water, health, climate, digital acceleration and biodiversity, all point to a need for a larger Private Sector Window in IDA21.


Key takeaways on the IDA Private Sector Window

PSW enables IFC and MIGA to support higher-risk projects at larger scale. Despite the deterioration of the global economic outlook in recent years, IFC’s commitment volume in PSW countries was three times greater than would have been expected without the facility. For MIGA, the commitment volume was approximately two times greater than it would have been without PSW.

PSW supports projects with higher credit and political risks. For IFC, 80 percent of PSW-supported projects are in the “very weak” or “weak” range of credit ratings. In the same countries, non-PSW supported projects have better credit ratings that reflect larger, blue-chip companies. For MIGA, 57 percent of PSW projects are in the highest political risk rating categories, compared to 26 percent of non-PSW projects in IDA countries.

PSW supports projects with high development impact. To date, IFC’s Anticipated Impact Measurement and Monitoring (AIMM) and MIGA’s Impact Measurement and Project Assessment Comparison Tool (IMPACT) ratings of IDA PSW projects are higher than non-PSW-supported IFC and MIGA projects. This indicates that through the PSW, IFC And MIGA are reaching the most vulnerable populations in the world’s poorest countries.

PSW mobilizes commercial investment at a rate of 5:1. Each $1 of PSW invested enables over $5 of commercial investment. Since inception, $4.8 billion of PSW funds from IDA have enabled $24.3 billion of investment.

The PSW is not a grant. The PSW is not a grant to IFC, MIGA, or private clients. IDA funds through the PSW are co-invested alongside IFC and MIGA in the form of guarantees, subordinated or concessional loans, equity, and cross-currency swaps. IDA received reflows in the form of fees, interest, principal and a small return. This makes the PSW an efficient mechanism for recycling scarce IDA funds.

PSW funds follow the principle of minimum concessionality. This means using donor funds only to the extent necessary to make a project financially viable or to attract private investment where it might not otherwise be available. On average, the subsidy level for PSW-supported projects is just 6.7 percent of the total project cost—and IFC and MIGA are the only development finance institutions that publish such project-level information.

Also available in: Arabic | French | Spanish