SEATTLE, Washington — October 1, 2019, is slated to be the first official day of a new quasi-government agency, the U.S. International Development Finance Corporation (DFC). This entity will consolidate certain financial facets from the Overseas Private Investment Corporation (OPIC) and the Development Credit Authority in addition to having new capabilities.
What the DFC Will Do
The Better Utilization of Investment Leading to Development Act (BUILD) laid the foundation for the U.S. International Development Finance Corporation. Under BUILD, the DFC is permitted to make loans or loan guarantees in U.S. dollars or local currency. It can also obtain “equity or financial interests” in business enterprises or similar ventures as a minority investor. It can also provide insurance and “technical assistance, administer special projects, establish enterprise funds, issue obligations and charge and collect service fees.” The DFC will serve as an enhanced model of OPIC, which was originally chartered in 1971.
Some of the new capabilities the DFC will possess include:
- Equity Authority: This is one of the most distinguishing features of the soon-to-be DFC. In addition to political risk insurance, investment funds, loans and loan guarantees, DFC will be able to make limited equity investments in overseas private business enterprises. Presently, there is an equity investment cap of $20 billion to be used in a seven-year timeframe.
- New Investment Cap: The cap of investments under the DFC umbrella will be $60 billion. This is a marked increase from the $29 billion cap under OPIC.
- Technical Assistance and Feasibility Studies: DFC has the ability to provide technical assistance for development finance projects and conduct independent feasibility studies.
- Collaboration with USAID and the State Department: A new position called Chief Development Officer will oversee interagency cooperation. This Chief Development Officer will head the Office of Development Policy. This office will be staffed with long-term rotating employees from both USAID and the State Department.
- Prioritization of Low and Lower Middle-Income Countries: DFC and its staff will specifically prioritize investments and development projects in lower-income countries to ensure the maximum effect of its impact.
- Impact Quotient: Although details are sparse at this point, the “Impact Quotient” will be the way that DFC can keep track of development and determine the efficacy of its investments.
Encouraging Further Investments
By utilizing a “crowd-in” approach for financing development, Development Finance Institutions (DFIs) aim to spur further development by making their initial investment. DFIs often invest in ventures that others would otherwise not. However, by seeing that a DFI is willing to invest in a certain enterprise, other investors at private, state, local and international levels are encouraged to invest in such ways. DFIs provide the necessary financing to cultivate innovative projects in developing countries that would otherwise lack funding.
The U.S. International Development Finance Corporation marks the beginning of a new project. Its codified ability to deliver flexible investment strategies marks a notable change in U.S. international development financing. This is especially noteworthy because the first budget proposal under the Trump administration had proposed jettisoning OPIC altogether. The BUILD Act’s de facto establishment of the DFC is another example of how efforts to implement poverty reduction programs can be successful.
– Evan Williams