Multilateral Development Banks' Harmonized Framework for Additionality in Private Sector Operations

Abstract

The international community has reached a consensus that private sector finance must play a critical role to achieve the Sustainable Development Goals (SDGs) and the COP 21 commitments. Private sector finance is more abundant than even the most generous levels of development assistance. Yet private investment does not always flow to areas of need. Indeed, foreign direct investment is concentrated in certain geographies and certain sectors. As a result, local capital markets and financial sectors remain shallow in several developing and emerging markets. MDBs are uniquely placed to help bridge the significant gap between demand and supply for private finance and help build a more effective demand (so-called bankable projects) in developing and emerging markets. MDBs make significant efforts to channel private finance to unserved or underserved markets by helping address existing failures in business and regulatory environments and actively contribute to creating and enhancing opportunities for private financiers. A fundamental principle guiding MDBs’ engagement in these operations is additionality:1 MDBs’ support to private sector operations should make a contribution that is beyond what is available, or is otherwise absent from the market, and should not crowd out the private sector.