Is the future of development finance private?

Are sustainable bonds the future for raising money for developmental goals?

This seems to be the implication as Western countries start tightening their belts when it comes to aid. 

It’s an option that the UN’s International Fund for Agricultural Development has pursued with gusto, having issued more than $1 billion sustainable bonds–a bond that allows institutions to raise money from investors and repay it over time, whilst these funds are directed to projects that bring social and environmental benefits.

What’s more the UN seems to have got the marketing right, portraying the bonds as not just a humanitarian but also an investment opportunity, with some investments seeing a $2 to $4 return for every $1 invested.

Consequently, over the past three years the UN fund has issued 12 sustainable development bonds, which has helped it raise capital from investors including pension funds and asset managers. These funds then  go toward loans for rural development projects that include support for smallholder farmers, strengthening food systems and helping rural communities adapt to climate change. 

With the fund having an AA+ rating, suggesting it is trusted by investors to make good on repayments, it can attract attention from beyond the usual network of development finance institutions, opening the door to far larger pools of private capital. 

The future could well be private.