Comparative analysis of financing instruments used by development finance institutions: lessons for Brics Development Bank

Ntsaluba, Sango Siviwe

Comparative analysis of financing instruments used by development finance institutions: lessons for Brics Development Bank

Master Thesis

2014

Publisher

University of Cape Town

Department

Research of GSB

Faculty

Faculty of Commerce

Abstract

Financing instruments are the means by which development finance institutions carry out their mandate of addressing the socio-economic needs of the country, group of countries or a region. It is of great importance that the development and application of financing instruments should be in line with the objectives for which the development finance institutions were established. The literature reviewed was intended to establish the reasons for the existence of development finance institutions and their role in private sector development. Furthermore, literature was reviewed to establish various financing instruments developed and applied by development finance institutions. The study is premised on the fact that new DFIs can be complementary thus an assessment of DFIs will provide instrument and sectoral gaps which the BRCIS Bank can take advantage of. As such, the study was to examine the financing instruments that development finance institutions (DFIs) use to address their economic objectives and identify lessons for the BRICS (Brazil, Russia, India, China and South Africa) Development Bank. The study employed the qualitative exploratory research strategy. Documents and in-depth interviews were used as data. The sample included major multilateral, regional and bilateral development finance institutions operating in developing economies, including BRICS countries. The author established that there are varied founding objectives of development finance institutions and that there is wide use of traditional financing instruments of debt and equity. However, there is limited use of innovative financing instruments such as project finance and those applied in Public Private Partnerships (PPPs). The main recommendation made is that BRICS Bank should take advantage of the existing instrument and sectoral gaps if it is going to survive not only as a competitor but a complementary DFI. In addition it should consider the introduction of innovative instruments that take into account developing and emerging economies realities. In light of mission drift and agency issues the BRICS Bank should have robust governance and monitoring and evaluation frameworks that will ensure that its founding objectives are pursued.

Keywords

Development Finance

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