Reducing Transaction Costs in Development Impact Bonds

By Waka Itagaki

Development Impact Bonds (DIBs) are a results-based financing mechanism that leverages private capital for international development. Since the first DIBs were created in 2014, one of the mechanism’s key challenges has been high transaction costs: Each DIB project is unique, and this customization increases legal fees and requires financial intermediary and technical services. This article highlights two ways to reduce these costs: sharing data and knowledge about DIBs among stakeholders, and limiting the focus of DIBs. The reduction of transaction costs will promote greater use of DIBs for international development.

Introduction and Background

DIBs catalyze private investment that generates social impact as well as financial return, so called “impact investment,” by engaging private investors, service providers, host-country governments, donors, and intermediaries. Once all stakeholders agree on a common goal and an evaluation method, private investors provide upfront funding for a development project and work with service providers. If and only if the pre-agreed development outcomes are achieved, host-country governments or donors repay the investors. An intermediary organization coordinates among the stakeholders and contributes to the creation of a deal that meets all stakeholders’ interests.

Continue reading

Reimagining Refugee Integration: Economic Burden or Boon?

By Ryan Lasnick

The changing dynamic of refugee situations across the globe necessitates new and creative solutions that reconcile the economic interests of host nations with the considerable needs of all refugees. Two-thirds of the world’s refugees have lived in exile for more than five years, often in overcrowded slums without freedom of movement and no possibility of work. These refugees are kept in a holding pattern, forced to wait for peace so that they can return to their homes. Refugees need financial stability to survive in their host countries, which only integration into the economy can provide.

One path toward integrating refugees as well as fostering economic growth within a country is the creation of special economic zones (SEZs). By understanding refugees not only as a humanitarian challenge but also a development opportunity, countries can create economic opportunities that are mutually beneficial. This post considers the case of the King Hussein Bin Talal Development Area (KHBTDA) in Jordan to analyze the potential impact of opening up labor markets for refugees.

While the creation of SEZs that are specifically open to refugees is a relatively new idea, SEZs in general are not. In fact, over the past decade Jordan has invested in the creation of several SEZs in order to attract foreign investment, increase employment, advance high-value economies, and facilitate the transfer of technology and skills. These zones are set up strategically throughout the country, but remain widely underutilized. The zones have the potential to be successful, already having robust physical infrastructure in place, but they lack the human and private capital needed to create sustainable economic opportunities for Jordan. In this case Jordan’s large educated working class hinders its economic development because most Jordanians are reluctant to take low-wage, labor-intensive manufacturing jobs that are common in SEZs.

Continue reading

Global Development Forum: Financing for Development Preview

In July 2015, heads of state, finance ministers, foreign ministers, and ministers for development cooperation will gather in Addis Ababa, Ethiopia for the third United Nations International Conference on Financing for Development. The Addis Conference seeks to identify funds to support the post-2015 Sustainable Development Goals (SDGs). This conference will be fundamentally different from earlier FfD conferences held in Monterrey in 2002 and Doha in 2008. In 1980 low and middle income countries received $32 billion of ODA and $7.6 billion of FDI, but by 2013 those countries received $133 billion of ODA and $735 billion of FDI.  As global incomes rise, emerging donors have taken on a much greater role in development. Developing countries’ themselves have gained a greater ability to finance their own development as private sector economic activity in the developing world continues to grow. Below we have outlined some of the ways development finance has changed to respond to a new set of challenges and development realities.

The UN will host the third Financing for Development Conference in July

The UN will host the third Financing for Development Conference this July in Addis Ababa, Ethiopia.

A New Role for Traditional Donors

While ODA and traditional development financing remain important catalysts for development, donors that were once the main sources of financing for developing countries increasingly find themselves playing a complementary rather than unilateral role. Private financial flows have increased rapidly and ODA and public funding for donor organizations have increased at a more limited rate. As a result, traditional donors are finding new ways to leverage their funds to create maximum impact, often through encouraging private sector growth. Continue reading

Debate Driver: Paul Guenette

Who is he?

Paul Guenette

Mr. Guenette at a recent CSIS event

Paul Guenette is the Executive Vice President for Communications at ACDI/VOCA, a leading development contractor, and has designed and implemented integrated sustainable development programs over the course of a career that has spanned 40 years and 70 countries. His experiences include long-term assignments in Senegal, Mauritania, Indonesia, Barbados and Kenya, heading agribusiness programs that incorporated activities in policy reform, business group strengthening, commercial marketing, equity financing and investment promotion.

Mr. Guenette began his development career in Senegal through the Peace Corps, and continued to travel back to West Africa on assignments with the U.S. Agency for International Development. He previously worked with Development Alternatives Incorporated and Deloitte’s Emerging Markets Practice.  He earned his M.B.A. at the Stanford Graduate School of Business and his B.A. in theater arts at Kalamazoo College. Continue reading

Ukrainian Activist and Pop-Star Ruslana Lyzhychko at CSIS

3927105540_4b0ffd7ea2_b

Ruslana spoke at CSIS on September 10

Who is she?

Ruslana became a prominent figure in the Euromaidan movement through her nightly performances on the front lines of the protests. She currently leads efforts to support internally displaced persons from Crimea and the Donbas and performs for Ukrainian troops in Eastern Ukraine. In January 2014, Ruslana testified at the European Union’s European Economic and Social Committee (EESC), which contributed to a resolution in support of Ukrainian civil society. Ruslana has traveled throughout Europe to increase international support and awareness of events in Ukraine. She previously served as a Member of Parliament for the Our Ukraine party from 2006-2007 and was actively engaged in the 2004 Orange Revolution. Continue reading