Banking beyond the BRICS: Christiane Laibach, CEO of DEG

25th July 2018 Jack Aldane

At the start of the month, Christiane Laibach took over from Bruno Wenn as CEO of Germany’s private development agency, DEG. She caught up with Jack Aldane to discuss the challenge she now faces in maintaining DEG’s track record for sustainable investment, and where she sees scope to improve its performance.

You started in the role of CEO in July of this year. What has been your list of priorities so far?

My aim is to continue DEG’s successful development and make the company fit for the future, both internally and externally. Key issues that we address include support for digitalisation in our partner countries and measuring the developmental impact of our investments. I am also particularly keen to develop the advisory services and programmes that DEG offers its customers, in addition to long-term financing. To give two examples: DEG’s Business Support Services help improve the performance of companies. And, for young innovative companies in particular, the Up-scaling programme allows us to finance pioneering investments. In 2017, we helped the Hamburg-based company BIO-LUTIONS, which has developed an innovative process for reusing vegetable waste as packaging, to establish and expand the production of biodegradable packaging in India.

Development finance institutions of the G7 last month promised to invest US$3 billion in women in low-income countries. How can that capital be most effectively utilised in your opinion?

Female entrepreneurs are essential for development in many countries–and yet often have very limited access to financing and advice. It is therefore vital to make it fundamentally easier for them to access investment capital, for example to set up and further develop a small business. We are convinced that DFIs can make significant contributions to the empowerment of women. Our focus here is on promotion of ideas by female entrepreneurs in developing countries in order to contribute to greater participation of women in business.

How are you going to ensure DEG enters regions of the world where it is most needed, rather than places that present the least challenge?

DEG has an important but also differentiated role in its partner countries. For instance, we see demand potential especially for equity and mezzanine products from companies in advanced emerging countries with developed financial markets. In emerging countries that have international capital market potential, the so-called ‘Beyond BRICS’, DEG offers its entire range of financing and advisory services and at the same time achieve high development effects, for example in terms of employment and infrastructure supply.

DEG is also in demand in less developed IDA and post-conflict countries, especially as an adviser conveying and disseminating international standards. We expect demand to grow further in this area, especially from companies in these countries. Bangladesh, for example, was among the top 10 countries in our new business in 2017.

Last but not least, we have been working for years to place a stronger focus on Africa as a continent with opportunities. And we will continue to do so in the years to come. Financing for companies in Africa accounts for around 25 percent of our portfolio, a fairly constant figure. DEG’s financing for the private sector ensures jobs for currently around 400,000 people in Africa, 120,000 of which are women. In addition, the companies we finance in Africa generate local income of €19 billion. Another result is that via the financial sector, DEG reaches around half a million small and medium-sized enterprises in Africa.

DEG’s recent development policy report assesses its customers for their effectiveness at furthering sustainable development. It identifies several SDGs in which they excel, one of which is SDG 1: No poverty. How do you measure effectiveness for this SDG in particular, given that it is arguably the goal that depends on every other goal almost by definition?

Creating and safeguarding qualified jobs is of utmost importance, as vocational training and employment, in particular, pave the way out of poverty. Jobs provide more than monetary income; they are the cornerstone of development by improving living standards, raising productivity, and fostering social cohesion.

DEG’s Development Effectiveness Rating (DERa) only assesses direct jobs in terms of a specific number. The indirect job potential of an investment–higher up the value chain–is categorised depending on the economic sector. An investment in the textile sector, for example, is assigned higher job potential compared to investments in information services.

DEG’s approximately 600 current customers employed over 1.5 million people in 2017. Furthermore, they pay some €14 billion in wages and salaries every year. An increase in local income also means an increase in opportunities for people in developing countries to make self-determined decisions. In our view, these are effective contributions to poverty reduction.

DEG assesses its own impact using the Development Effectiveness Rating system (DERa). Of the system’s five categories for assessment–fair employment, local income, market and sector development, environmental sustainability, and local community benefits–where do you see most room for DEG to improve?

The business activities of companies can result in varying development outcomes, depending on the investment needs of the country and of the sector. In using the DERa, DEG evaluates by means of country and sector indicators whether an investment is being made where it is most urgently needed.

With regard to market and sector development, we currently see some room for improvement, especially in the field of innovation, which as you may know is reflected in SDG 9. Until now, 56 percent of DEG customers contribute to innovation by introducing new technology, developing new products or implementing new processes, which is great of course. Forty percent of DEG costumers contribute by means of their investments to reducing country-specific bottlenecks in energy, transport, IT and communication technology, or to creating access to financing. This leaves room for improvement, and we are therefore striving to even raise this proportion.

This is one of the reasons why we want to intensify our efforts to promote innovative business ideas, for example in the area of fintechs. These new technologies that provide access to finance for households and small businesses in developing countries are part of a revolution, but they also create new challenges. DEG was therefore involved in developing the Guidelines for Investing in Responsible Digital Financial Services, which include the promotion of transparent, fair conditions as well as the responsible use of personal information.

The Guidelines for Responsible Digital Financial Services you’ve supported along with 50 other organisations is an important statement of intent to direct investments towards services that treat customers fairly. How is this guidance going to be implemented and how will it maintain standards across all supporting organisations?

The Guidelines for Investing in Responsible Digital Financial Services are a voluntary framework investors can sign up to and use as guidance for their investments in responsible digital financial services. DEG joined as a core working group member very early in the process and actively contributed to the development of these guidelines. The purpose of the guidelines is to help investors effectively identify, evaluate and manage risks associated with digital financial services, as well as promote responsible practices and protect low-income households and micro-entrepreneurs in emerging markets.

Following the launch of the guidelines at the Connecting The Dots conference in Amsterdam in June 2018, the core working group members are currently discussing how to organise a community of practice for the practical implementation. The objective is to make these guidelines relevant and meaningful in practice. Digital finance is still a nascent and rapidly evolving industry, so there are no benchmarks for the various innovative business models yet. The community of practice aims to help build benchmarks by sharing experiences, good practices, practical tools and lessons learned as well as to further develop the list of potential investor actions.

What makes you most excited to embark at the helm of DEG, and what most keeps you awake at night?

At the moment the Cologne summer heat is probably what affects my sleep the most! But, joking aside, DEG’s expertise enables it to be successful in its work with partner countries, even during challenging times as they currently appear from a global point of view. DEG has proved that time and again. Companies benefit from our long-term perspective and value us as a reliable partner. And we observe time and time again that entrepreneurs can operate very successfully, especially in countries regarded as more risky. These are usually entrepreneurs who do not see compliance with environmental and social standards as a hindrance, but rather as an opportunity to make their company fit for international markets.

With our already mentioned Business Support Services, we support customers on matters such as working conditions, skills, environmental issues and corporate governance. For many companies, this additional feature is the reason why DEG was chosen as a financing partner. Business Support Services are a truly unique selling point that we want to strengthen and expand in the future.

Of course, the current uncertainties about world trade and alliances are not making business any easier. But we can master such challenges by building on our strengths: our global presence across four continents, our excellent network of representative offices and our local staff.

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