«We are working on a harmonised global standard
for the measurement of impact»
EDFI (European Development Finance Institutions) is an association of fifteen European development finance institutions (DFIs), including SIFEM, which operate in emerging and developing countries. EDFI was founded by six DFIs in Brussels in 1992 with the aim to enhance cooperation and facilitate knowledge-sharing between its members and other bilateral, multilateral and regional DFIs. In the interview below, Bruno Wenn, EDFI Chairman, speaks among other things about the European development finance environment, the future of EDFI, the challenges arising from the global COVID-19 crisis, and the opportunities for DFIs in the post-COVID-19 period.
Since the founding of EDFI, you have been involved in this organisation in a variety of functions. What are some of the most important developments and successes you have experienced during this time?
First, our association has seen strong membership growth. We started with six members, today we have fifteen. Second, the volume of investment has grown markedly. The combined portfolio of all our members now stands at nearly USD 50 billion. Third, we have become much more relevant, thanks to the United Nations Sustainable Development Goals (SDGs). The issue of job creation puts the spotlight on the private sector, which we successfully support. Fourth, we have succeeded in broadening our connections with similar organisations such as FinDev in Canada and the DFC in the US. An example is the 2X Challenge, which we have jointly launched with the aim of strengthening women’s participation in the economy. We are also in a position to lay down principles that are adopted by multilateral development banks, for instance in blended finance. As an association, we conduct joint training sessions and make a substantial contribution to the much-needed harmonisation of standards. Lastly, one other important milestone was the establishment of the EDFI Management Company (EDFI MC) in 2016, which operates European Union schemes for financing business development.
You took office in 2018. Apart from the COVID-19 crisis, what are some of the biggest challenges you have faced in your role as EDFI Chairman?
One major challenge was the debate on the European financial architecture for the promotion of development. We had to think about how we wanted to position ourselves as an association and how to bring our viewpoints into the discussion. The second challenge was to intensify our collaboration with similar institutions outside EDFI, where we still have to develop a common understanding of how we can work together. A third challenge concerns the measurement of impact. Uniform standards to tackle this issue remain an important need. Within EDFI, we have a common understanding of what impact means. However, persuading others outside EDFI to share this understanding is a challenge. Fourth, as we grew, we have had to adapt our own structures.
How do you rate the current level of collaboration between EDFI members compared to before? And in particular, what is your view on the collaboration between EDFI and SIFEM?
Cooperation between members is now very strong and close. Whereas in the past, it was the larger members who mainly led the way, today the smaller ones are also getting involved, bringing their own experiences, viewpoints and problems to the table. SIFEM may be one of the smaller members, but it has always taken on responsibility within EDFI, for instance by actively participating in task forces, networking groups and on the supervisory board. SIFEM also took the lead on the issue of Responsible Tax Behaviour and Transparency. At EDFI, we benefit from SIFEM’s knowledge and engagement.
Some Western European countries, such as Ireland or Luxembourg, still do not have a DFI. Do you see any signs of interest in forming new institutions that could join EDFI?
Several European countries are currently contemplating setting up a development finance institution. We assist with this thought process and we are currently in discussions with Luxembourg, for example. We are also ready to make our advice and experience available to other countries. At the end of the day, of course, we hope to attract more members along the way. However, there are a lot of countries in Europe that currently have no development banks at all, either nationally or for international activities.
The EDFI Management Company (EDFI MC) manages ElectriFI and AgriFI, two EU-funded instruments for promoting renewable energy and sustainable agriculture in developing countries, as well as other co-financing schemes such as European Financing Partners (EFP) and the Interact Climate Change Facility (ICCF). How do you think these arrangements have performed so far? What kind of investments might future facilities focus on?
The EDFI Management Company was founded to operate blended finance facilities for the European Commission, which we have successfully done. ElectriFI and AgriFI are highly valued “market development facilities”, as they are called. The Commission is therefore going to give us additional funding: almost half a billion euros for ElectriFI and AgriFI. That makes sense, because it allows us to finance measures that no other EDFI member would take on, because the risks are just too high. Future initiatives will most likely target Africa, for instance in private equity funding.
The EU already has its own development institution, the European Investment Bank (EIB), and the London-based European Bank for Reconstruction and Development (EBRD), founded in 1991, is also a major international financial institution. Isn’t the European development finance market a bit crowded?
EDFI’s unique selling point is that our members work exclusively with the private sector and have an immense amount of knowledge in this area, as they have successfully demonstrated in recent years. Members operate in some very tough countries, yet they still manage to achieve a return and have an impact on development policy. That’s why we play a special role within Europe and the European institutions, and it’s also why, for example, 74% of EU funding1 for the private sector in sub-Saharan Africa goes through us.
Three of EDFI’s fifteen members are outside the EU, including the British CDC, which is one of the three biggest members in terms of portfolio size. Does this affect the relationship between the EU and EDFI?
No, this does not affect our relations with the EU, because it is clear that these three non-EU members cannot use European Union instruments. Having non-EU members in EDFI is also a big plus: it makes our network even stronger.
European DFIs currently have a combined portfolio of almost EUR 50 billion in committed investments. Yet the annual funding gap for businesses in Africa alone is estimated by the IFC at well over USD 300 billion. So would the combined portfolio of EDFI members need to be six times larger just to meet the funding needs in Africa? Or do DFIs simply need to mobilise more private capital to meet developing countries’ needs for finance?
Both must be done. EDFI’s substantial growth rate, which has averaged 10% per year over the last ten years, must be maintained. To do this, our members need additional capital and guarantees from their owners. But we also need to mobilise more private capital. In the long run, we ought to be able to sell DFI investments as a distinct asset class. In other words, private investors would buy into DFIs’ knowledge of how to make investments that are risk-managed, generate good returns and rank as development policy successes. To achieve that, however, we need to keep growing because big investors aren't looking for the USD 5-20 million tickets we are used to, but for USD 50-500 million.
China has been taking an increasingly important role in African development in recent years. Chinese development banks and companies have dominated the financing and development of critical infrastructure in Africa since 2017. What is EDFI’s view of the Chinese development agenda for Africa? Does it represent competition for EDFI or does it complement EDFI’s long-term goals?
EDFI has not addressed this issue to date, since Chinese development policy largely concerns the public sector. My own assessment of the Chinese involvement in Africa is somewhat ambivalent. On the one hand, I can see that African public debt has gone up dramatically as a result of Chinese investments. The macroeconomic benefits of investing in a road, for example, can be reaped more slowly than the rate at which the debt has to be serviced. On the other hand, China’s substantial engagement has shown that Africa is a continent of opportunity, while in Europe, Africa is still very much perceived as a continent of risk. The roads, ports and railways built with Chinese support have opened up market opportunities for private companies. This interest in Africa is also good for us, as it makes it easier to find private investors who want to work together with us in Africa.
What is EDFI doing to mobilise more private capital? Is there any institutional cooperation between EDFI and private sector organisations?
On average, our members mobilise some six to seven billion US dollars of private capital every year. Some of our members also have specific targets in this regard. EDFI has an institutional partnership with the Climate Finance Leadership Initiative (CFLI), which includes several major players such as AXA, Bloomberg and Goldman Sachs. They are all looking for sustainable, impact-oriented investments in developing countries and have come to us because we have the experience they need.
All over the world, job losses due to the current COVID-19 crisis are having devastating effects on vulnerable groups, especially women and younger workers. These groups often suffer from underemployment and they constitute an important part of the working population. What has EDFI been doing to tackle this problem?
In late 2020, we succeeded in forming a coalition for MSMEs in Africa. This includes the members of EDFI, FinDev Canada, the DFC (USA), the African Development Bank, the West African Development Bank and the Islamic Development Bank. The coalition has a very strong focus on young businesses and especially on women. The 2X Challenge has also proved to be a very successful platform in this crisis. Since it was set up, it has raised several times the amount it originally targeted. Lastly, we are also seeing substantial growth in the proportion of women-oriented finance among our members.
The crisis has not hit all the regions and countries in the world equally hard. What regional differences have you seen in terms of the impact of the crisis?
The effects did indeed vary. In Africa, for instance, cash flows suddenly turned negative. In many African countries, we also saw how lockdowns imposed in the absence of adequate social and economic support indirectly led to serious problems. In our estimation, Africa has been more badly affected than Latin America or Asia. However, a number of our members who have very close relations with Latin America or Asia have also expanded their involvement there in connection with the crisis.
What contribution has EDFI made towards better global access to COVID-19 vaccines?
The major development banks are heavily involved in the COVAX initiative, which aims to ensure access to COVID-19 vaccines. Meanwhile, our members are providing support for vaccine manufacturing, especially in Africa. We are helping to build commercial organisations that can produce vaccines and other pharmaceutical products. Our members are also involved in the construction and maintenance of hospitals, as well as in logistics. Logistics is really a major challenge. In the Democratic Republic of Congo, for instance, large volumes of COVAX-supplied vaccination kits had to be destroyed because the lack of cold chains made it impossible to distribute them throughout this vast country.
Has the crisis led to a new strategic direction for EDFI?
COVID-19 has not changed the focus of our strategy. On the contrary, it has reinforced it. We are continuing to focus on the harmonisation of standards and on intensifying cooperation, not only within EDFI but also beyond it, with the European institutions, which have become even more important to us.
What role can EDFI play in connection with the “Building Back Better” agenda – especially as regards climate?
We have always helped our customers to develop business models that are financially, environmentally and socially sustainable. EDFI has a leadership function in this area. In the midst of the COVID-19 crisis, some of our members helped their customers make their business models even more resilient. Skills development, for instance, plays an important role here. We encourage businesses to invest in the ongoing training of their workforce. A more qualified workforce enables firms to steer through the challenges of the future more effectively. With regard to cutting greenhouse gas emissions, we agreed on an ambitious policy statement at the end of 2020. We have gone further than other similar institutions and have set the target of being in line with the Paris Climate Agreement by the end of 2022 and restructuring our entire portfolio by 2050 at the latest. Of course, we have chosen to exit from financing coal and oil. Nevertheless, the private sector needs a reliable energy supply with 24-hour availability. Some countries also have quite limited opportunities to rely on renewable energy at this stage. Intermediate solutions therefore need to be found, and we still see an important role for gas in that regard.
Measuring and reporting on impact plays a significant part in underpinning the credibility of DFIs as transformative actors. What has EDFI done to help identify and harmonise impact indicators that could be used by all impact investors?
Firstly, the EDFI members agreed among themselves on a harmonisation initiative in 2019. The latter is very ambitious and covers five key areas of the United Nations Sustainable Development Goals (SDGs): gender equality, economic growth, decent work, social inequality and climate. We have made great progress in agreeing standards for measuring development impacts. However, many different standards still exist around the world. A local partner working together with several DFIs shouldn’t have to use and master five to seven different systems. For this reason, we also established a steering committee in 2019 together with the IFC (private sector investment arm of the World Bank Group) and the GIIN, the global association of impact investors, with the aim of harmonising standards. To begin with, for instance, we have managed to harmonise indicators in relation to jobs, gender and climate. For those areas, we now have joint impact indicators. And we are working progressively on other areas, with the aim to produce a harmonised global standard for the measurement of impact that would become a reference for reporting, following the same model as financial reporting. We want to continue to be a leader in this area, because we have the experience of what is practically possible and what is not.
One last question: where do you see EDFI in 2030? Will the world still need development finance institutions by then?
From a development policy point of view, I am afraid that we will be needed for some time to come and will probably be needed even more in the future. Many of the UN Sustainability Goals (SDGs) will not have been achieved. In the future, there will also be an even greater focus on the Least Developed Countries (LDCs). Countries in this group are characterised by fragile systems and post-conflict situations. In other words, DFIs have to take even more risks to demonstrate that the private sector can contribute to the development of these countries even under extremely difficult conditions. This is a major challenge.
Bruno Wenn has nearly four decades of experience in the field of development finance and development cooperation. He has been the Chairman of EDFI in Brussels since 2018, and previously, was the CEO of the Deutsche Entwicklungs- und Investitionsgesellschaft (DEG), the German Development Finance Institution (DFI) and a subsidiary of the KfW Group (Kreditanstalt für Wiederaufbau), one of Europe’s largest development banks. From 1982 until 2009, he held several leading roles at KfW.
Bruno Wenn holds a university degree in economics as well as a postgraduate degree from the German Development Institute in Berlin.
Facts and figures about EDFI –
European Development Finance Institutions
- EDFI: founded in 1992, headquartered in Brussels
- SIFEM: joined EDFI in 2005 (before SIFEM was established in its present form in 2011)
- EDFI Secretariat: 8 employees, 63% women (as of 30 June 2021)
- EDFI Management Company (EDFI MC): established by EDFI in 2016 to manage facilities such as ElectriFI and AgriFI, two EU-funded instruments for promoting renewable energy and sustainable agriculture, and the European Financing Partners (EFP) co-financing scheme.
- EDFI Management Company: 37 employees, 47% women (as of 31 December 2020)
1 Europe in the World: The future of the European financial architecture for development (Wise Persons Group Report), Council of the European Union, p. 45, https://www.consilium.europa.eu/media/40967/efad-report_final.pdf