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.

BMZ glossary

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