Development Banks Revamp Finance Measures to Show How Private Capital Fuels Growth

The changes respond to the G20’s call in its 2024 Viewpoint Note to broaden the coverage of the joint measurement methodology, with credible, consistent and transparent reporting at the centre of the effort.

Thirty multilateral development banks and development finance institutions have endorsed updated joint methodologies to give a clearer picture of how they help make private finance available for development. Prepared by the MDB Task Force on Mobilization, the revised framework expands measurement beyond financing connected to individual projects, reflecting the different ways these institutions support investment in emerging markets and developing economies.

The changes respond to the G20's call in its 2024 Viewpoint Note to broaden the coverage of the joint measurement methodology, with credible, consistent and transparent reporting at the centre of the effort. For shareholders, clients and investors, the framework offers a fuller account of how development institutions raise financing, bring investors into transactions and influence investment beyond their direct involvement.

Three Measures Capture Different Routes to Development Finance

Mobilization measures financing made available for a project that receives financing or guarantees from a development bank or development finance institution, or qualifying advisory or transaction support. It captures the contribution institutions make through their involvement in a particular transaction, linking their support to the financing available for that project.

Generation, a new indicator, measures financing made available to the institutions themselves for development activities or their wider development mandates, drawing on attributes such as their balance sheets and credit ratings. Its focus is on the institution raising the financing, regardless of the risk associated with the eventual recipient or activity being financed.

Catalyzation remains under development and will provide a common approach to estimating private investment resulting from institutional activities or activities they finance that extends beyond their own financing and mobilization. The three indicators distinguish financing by investor risk, timing and whether an institution finances the activity, covering the journey from funds initially raised to investment occurring after an intervention has ended.

Clearer Rules Strengthen Reporting and Reduce Double Counting

The package contains an overview of the history and concepts behind private finance measurement, an updated Mobilization Reference Guide, a new Generation Reference Guide and a Catalyzation Progress Note explaining the status of that work. These documents will underpin future annual joint reporting, giving participating institutions a shared basis for explaining their contribution to development finance.

The mobilization revisions represent the first update since 2018, introducing clearer principles on which financial flows qualify and expanded rules for attributing results when several institutions participate in a transaction. Those rules will help minimize double counting, supporting a more credible picture of collective contributions rather than allowing the same financing to inflate several institutions' reported results.

New indicators cover public and portfolio-based mobilization, expanding the reporting framework beyond private financing associated with individual projects. A clearer definition of mobilizing advisory services will help establish which forms of advice qualify, improving consistency in how institutions record the financing linked to their support.

Updated Guidance Recognises New Financing Approaches

The revised methodology provides new or expanded guidance for originate-to-distribute models, securitization, guarantees, risk-transfer tools and foreign exchange hedging, responding to shareholder requests for greater use of these approaches. Originate-to-distribute models involve arranging financing and subsequently transferring exposure to investors; securitization packages financial assets into investable securities, and other tools can help manage risks that affect investment decisions.

Capturing these activities more clearly can help institutions demonstrate the results of financial innovation and recognise contributions that older measurement rules did not fully reflect. The participating banks and institutions stressed that development challenges require private finance on a scale they cannot provide alone, making credible measurement a foundation for expanding their contribution and engaging shareholders, clients, investors and partners on the revised framework in the months ahead.