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Innovative instruments
Mobilising private investors
To boost development-oriented investment in cooperation countries, the German Federal Ministry for Economic Cooperation and Development (BMZ) seeks to mobilise market funds and private and institutional investors to finance development.
For example, additional private capital can be raised for development purposes – from both institutional and private investors – by setting up structured funds. These funds combine funding from public donors with money from development banks and international finance institutions and money from private investors. The public funds then act as a 'risk buffer' for the private investors.
Within financial cooperation, such structured funds have enabled €3.60 of additional public funds and €4.80 of additional private capital to be mobilised for every euro from the federal budget contributed between 2005 and the end of 2010.
The monies from structured funds are usually used for private finance institutions in the cooperation countries. They enable these institutions to make loans to micro, small and medium enterprises (MSMEs) and private individuals. The public monies are not used up by the funds but are reused when the loans are repaid; this approach provides a revolving source of capital.
Example: European Fund for Southeast Europe (EFSE)
A very successful example of such a fund is the European Fund for Southeast Europe (EFSE), which was set up through financial cooperation in 2005. In mid-2012 the Fund had a volume of around 870 million euros – of which more than 55 per cent was from private investors. By using the money on a revolving basis the Fund has now lent two billion euros in nearly 320,000 loans to micro, small and medium enterprises in southeast Europe and the Caucasus.
Since 2005 Germany has been involved in setting up more than twenty other trans-regional funds modelled on EFSE. The success of this model for mobilising private investors is recognised internationally.