Steve Hoare spoke to Association of European Development Finance Institutions’s new chairman, Nanno Kleiterp, about his role and that of EDFI in a changing landscape for development finance institutions
Nanno Kleiterp knows more about development finance institutions (DFIs) than most people, so much in fact that after 29 years of working for Dutch development bank FMO – the last eight of which as its chief executive – he has written a book about them, titled Banking for a Better World.
Given his experience, the Association of European Development Finance Institutions (EDFI) could not hope for a better-qualified choice as its first independent chairman. EDFI had previously filled the post with the CEO of one of its 15 members, but the appointment of Kleiterp signals a new beginning for EDFI.
“We have not been very involved in policy matters until now and we want to be much more active,” he tells Development Finance.
To do so, EDFI needed a chairman who was devoted to the job in a way that nobody who is also serving as a busy chief executive could do.
EDFI set up the EDFI Management Company at the beginning of 2017 to manage funds for the European Union (EU). Its first responsibility is ElectriFI, an EU fund for rural and off-grid energy projects in developing countries.
“The EDFI believes this is very important. The first priority is our connection with the EU and in the future we want to implement other blended programmes,” says Kleiterp.
He highlights the new Juncker funds, the European investment programme, which will be discussed before the summer of 2017 in the European Parliament, and will make €1.5 billion available for investment in Africa and the surrounding countries of the EU.
“We can play an important role in the implementation of these new funds that will be created,” he says.
“We also understand that international foundations such as the Bill and Melinda Gates Foundation are looking at how to reach out through the private sector to create an impact. That is also where we can play a role but the EU is the first priority.”
The management company opened its doors at the beginning of January 2017 with a handful of staff and the first investment has been approved. Kleiterp says staff numbers will grow as the investment portfolio grows and the company requires more experts in different sectors.
Aside from EDFI’s fund management role, Kleiterp views his part as to do with pushing its policy agenda further than it has gone so far.
“This reflects the increasing focus of the international debate on private sector development and blended finance, which also raises questions about avoiding market disruption,” he explains. “We can use our experience to influence the policy debate and advise governments and private investors how to apply blended finance in the most effective way.”
A period of change
In explaining the role of EDFI, Kleiterp notes that one voice is usually more effective than 15. If it is his voice speaking loudest, he says, policy makers should listen. There can be few with as much experience. Before joining FMO in 1987, Kleiterp spent a decade in Latin America – including a period in Mexico and Peru, as well as time working at the development bank of Nicaragua during the Sandinista regime.
It was these experiences, which shaped his view that the private sector was the best means of promoting sustainable development, but it was at FMO that he put these views into practice.
“FMO was quite innovative setting up new funds like TCX, the local currency finance fund we set up about eight years ago. It is a great example of how local currency can be done. We worked on Climate Investor One, getting pension funds and government involved in climate finance for renewable energy.”
When Kleiterp started work at FMO in 1987 the focus of development finance was on employment and SMEs. The move towards private equity and putting sustainability and corporate governance at the core of the business is the biggest change Kleiterp has observed during his long career.
“The other change is quantifying the impact of our investments. For example, FMO wants to double employment and halve its footprint. It aims to do this by doubling investments in the reduction of CO2 emissions.”
Of course during this period we have witnessed the amazing growth of DFIs, which have tripled the size of their portfolios during the past 10 years while official development assistance has stood still. FMO, for example, has a portfolio of almost €10 billion compared with less than €1 billion when Kleiterp started. Government thinking around development has also changed.
“Governments thought that the private sector was just companies making profits and it was doubtful they could bring positive development for the poor people. Now, when you look at the multilateral meetings in 2015 on sustainable development goals and climate change, governments recognise that it cannot be done without the private sector. The private sector is crucial for reaching the global goals and blended finance can be a crucial element.”
The future of development finance
The subject of blending is one that Kleiterp returns to again and again. It is the sector’s biggest opportunity but also its biggest challenge, he believes. But it is also the area where DFIs can have the biggest impact.
“DFIs can be the bridge between government and the private sector because the DFIs speak the language of both. Mobilising more funds from pension funds and institutional investors towards development is core. DFIs are absolutely key to making it work.”
Kleiterp uses the example of FMO to illustrate his point. The DFI has taken longer-term risk in syndicated loans with private investors. It has also set up a fund management company and raised funds for SMEs, energy and climate finance with institutional investors.
“We even reached out to private investors, together with ABNAMRO in the Netherlands. This was one of the first impact investment funds where private persons can invest directly in an impact fund, which is normally only for institutional investors,” he says.
“Institutional investors each have different risk profiles that they can accept in their portfolios. If you can lower some of those risks and make it possible for them to step in and invest in emerging markets then we can mobilise thousands of billions.”