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Development Finance Institution Practices in Africa

The focus, and accordingly the investment allocation, of different Development Finance Institutions (DFI) can vary broadly. Development Finance Institution Practices can be driven by the relative wealth of investee countries, or by sector or geography, impact driven, depending on the focus and the ultimate goals of each Development Finance Institutes.

Certain Development Finance Institutes tend to target specific income sectors. For example, Proparco and COFIDES tend to focus on certain relatively wealthier countries, while others such as CDC and the IFC target more low income regions. CDC has an explicit strategy to make 75% of its investments in low income countries, i.e. countries with GDP per capita of below USD 905 (as per the World Bank 2006 definition).

Similarly various Development Finance Institutes have specific a geographic focus. The IFC, for example, has an apparent focus on Latin America, while European Development Finance Institutes tend to have a clear skew towards Africa. Again, CDC has a specific prescription to target 50% of its investments into sub-Saharan Africa.

The major sectoral focus of DFIs is typically toward infrastructure and finance. The main reasons for this are that these deals tend to be on a very large scale and, by their nature, are seldom funded domestically, and may be too risky for private capital. Typically there is far less Development Finance Institutes activity in sectors such as agriculture and industry, as these sectors are more easily catered for by the private sector, given the smaller scale and consequently lower barriers to entry.

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