1© European Bank for Reconstruction and Development 2013 | www.ebrd.com

General AssemblySixth High-Level Dialogue on Financing for Development

New York, October 7-8, 2013

Mobilizing Transformational Finance – Investing IFIs, MDGs and the Post-2015

Development Agenda

Erik Berglöf Chief Economist

European Bank for Reconstruction and Development (EBRD)

• What is transformational finance?

• The case of Central and Eastern Europe

• Implications for the post-2015 objectives

• MDBs and transformational finance:• Use existing financial institutions

• Develop local financial systems

• Mobilise institutional capital

• Conclusions

October 2013

© European Bank for Reconstruction and Development 2010 | www.ebrd.com

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Outline

What is transformational finance?

• Finance transforms economies and lives of people• Access to (most) finance => sustainable and inclusive growth

• Use financial institutions to achieve development objectives

• Both equity and debt finance important• Equity more transformative (FDI/private equity funds/EM corporates)

• Broad range of debt needed (trade finance to long-term finance)

• Concessional finance can be transformative• Public finance ”crowd in” - not ”crowd out” private finance

• MDB Principles and DFI Guidelines on Concessional Finance

• Who we areInternational financial institution founded in 1991 with 64 government and supranational shareholders

• Our missionTo promote transition to open, market-based economies in 34 countries from central Europe to central Asia and the Southern Eastern Mediterranean

• What we doProvide transformational long-term debt and equity finance, mostly to private sector; 1/3 to climate change mitigation

EBRD does transformational finance

The Post-2015 Agenda and EBRD

© European Bank for Reconstruction and Development 2013 | www.ebrd.com

The Post-2015 Development Agenda• Extend the MDGs to neglected areas (e.g., governance) and

operational aspects of broader themes (e.g., climate change)

• Critical role of private sector recognised

• A broader role for MDBs

EBRD brings particular experience and skill• Governance and institutional change – measure impact

• Climate change mitigation - one third of what we do

• Private sector critical for inclusion and job creation

Europe transition countries catching up

Similar trajectories for groups of countries

Productivity growth linked to reform…

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Central and Eastern Europe Other Emerging Markets

Source: WEO database April 2013

In Central and Eastern Europe: private capital fuelled growth

MDBs use banks to deliver MDG-type goals:Energy efficiency credit lines

• Provide credit lines to banks to finance energy efficiency

• Build banks’ capacity to assess investment

• Provide incentives to entrepreneurs to invest

• Smart subsidies - maximize impact

• Target CO2 savings (not credit volume or just energy)

• Phase out subsidy element over time

• Subsidy to banks and entrepreneurs only for initial credit lines

• Also promote, for example, water and material efficiency, women entrepreneurs, food security, SME capacity...

MDBs catalyze local financial development:Local Currency and Capital Market Initiative

• Coordinated approach needed; MDBs cannot do it all

• Strengthen banking systems

• Promote non-bank forms of finance

• Reduce risk and dependence on foreign currency funding

• Improve macro and institutional context

• Joint analysis other institutions (IMF, World Bank and AMF)

• Technical assistance + catalytic coordination

• Use EBRD funding activity to help kick-start local markets

• Encourage local currency lending in projects

MDBs mobilize institutional capital: Institutional Investor Partnership

• Key strategic objectives for EBRD

• Mobilise long-term investment into region

• Provide capital for additional equity and debt investments

• Improve EBRD’s investment model and processes

• Objectives for institutional investors

• Diversified portfolio across region, sectors, asset classes

• Origination capabilities - largest foreign equity investor

• Attractive experience (>20 yrs) and risk return profile

• Comply with UN Principles for Responsible Investment

Conclusions

• Finance can transform economies and lives

• MDBs can facilitate transformational finance

• MDBs can measure institutional transformation

• MDBs can provide credit lines to promote MDGs

• MDBs can help build local financial system

• MDBs can mobilize institutional investors