BII’s Role in a Volatile World

Russell Reynolds Associates (‘RRA’) and the Gates Foundation hosted a breakfast discussion on 25th March 2025 for a group of senior leaders from global development organisations and investment companies with Leslie Maasdorp, CEO of British International Investment (‘BII’). He discussed the evolution of development finance and the approach of BII in the current context.

Key trends in development finance & BII’s approach

This is a defining moment for the sector as it takes stock before the International Conference on Financing for Development in Seville. Keynes' model of development finance premised on sovereign loans underwritten by developed countries to developing ones which were unlikely to go bust simultaneously needs augmentation. Only relatively recently has an approach defined less by state jurisdictions and more by global public goods been developed. Leslie highlighted how this features in the environment in which BII works:

1. Climate is at the forefront of everything BII now does, climate change represents the most fundamental challenge to development.
   
   
2. Working at city and regional level is now critical, notably in relation to climate mitigation. This is especially true for BII given its private sector focus.
   
   
3. Mobilisation of private capital is recognised as vital, but it has been inhibited by risk aversion and inflexible capital adequacy models at many commercial banks. IFFIm exemplifies what innovation can achieve in its use of the bond markets, but only a tiny fraction of the potential of capital markets has been tapped so far.
   
   
4. Local ownership of productive capital infrastructure and markets is essential to both development outcomes and MDB returns.
   
   
5. Working upstream with governments through technical assistance to create enabling policy environments for businesses is key (in Africa this is changing, e.g. heads of state are thinking about climate failure and how to respond to it). In this model, global institutions complement development led locally.
   
   
6. Standardisation of policies and impact metrics will help reduce the reporting burden on countries which work with multiple international finance partners. A harmonised approach, perhaps building on the World Bank-ADB mutual reliance framework, would allow the MDBs to work as a system.
   
   
7. Innovation - doing more with less. BII is crowdsourcing ideas from asset managers, pension funds, and financial services leaders in London. All of this is set against a geo-political backdrop that has been altered radically by the US. There can be no denying the real impact on the lives and livelihoods of the most vulnerable, as the formal declaration of famine in Darfur illustrates. Whether this is definitively the end of US engagement in the development system remains to be seen.

Systemic challenges that were brought up in the conversation

• Pipeline development: There is perhaps an imbalance in the competition for deal flow between DFIs and private equity in developed capital markets given DFIs can accept a lower rate of return.

• Institutional investor allocation: The regulation needs to change around capital adequacy so that pension funds can increase their allocations, which are currently biased towards the illiquid market. The Dutch Pension Funds currently allocate 15% to LMICs, whilst their British peers allocate less than 1%. Risk aversion is built into the system when there could be so much more throughput of money transmission.
  
  
• Governance and institutional reform challenges: LDC governments need to create the right authorising environments for capital market growth and investment.

Solutions discussed included

1. Clarity of Intent – The need for clear strategic goals by development financing actors

• Bifurcating business models to address both climate and development goals separately from humanitarian response provides clarity and focus. For instance, focusing on climate solutions in less risky economies with already well-developed capital markets whilst maintaining development-oriented investments in riskier markets private capital does not yet flow could help align goals with resources effectively. For example, 14 countries will account for 50% of carbon emissions by 2050, making them crucial for climate strategies.

2. Clarity of Categorisation – Aid versus capital markets, they are different and have different actors

• Humanitarian aid is key in disaster scenarios, particularly where famine threatens – e.g. DRC, Sudan.
• This is not to be confused with what BII and other DFIs are attempting to do, which is to invest in businesses that can scale, create platforms of fresh shareholders and recycle that capital to invest it and leverage the power of capital markets – BII’s investment in Mahindra, which is the largest manufacturer of EVs in India, for example.
• Catalytic capital is particularly important to deliver huge gains and for scaling investments into tens of billions, as intended by the $2.5bn Rise Climate fund established by TPG, Altérra, Brookfield and Blackrock which will not follow ‘first loss’ principles.

3. Clarity of Competence

• Government accountability and institutional reform is needed for LMICs to take ownership of their natural resources and value adding processes that could improve economic trajectories. For example, Ghana and Côte d’Ivoire produce 75% of the world's cacao but only export raw beans, allowing the capture of value in manufacture of cacao paste by developed countries, preventing them from reaping the economic benefits. This could be changed today but requires leadership.

4. Clarity of Narrative

• The US narrative of ‘America First’ has had a profound effect on USAID programmes and countries who have been completely dependent on that aid; for example, Malawi has lost 40% of its budget and so its agricultural and health systems are now failing with dire future consequences to come.
• The policy focus on national self-interest from traditional sources of ODA means it is now prudent to move away from the idea of development for altruistic purposes. The optics can change, but the activities need to remain the same – for example, raising funding for vaccines in the global South is ‘to protect the economy from future pandemics’, or investing money into businesses in LDCs is about protecting borders (e.g. Africa will be the biggest workforce in 2050 with 1 in 4 people being African).