World Bank mobilises $112 billion in private capital for developing world

Last fiscal year, the World Bank successfully secured a record $112 billion in private capital investments for developing countries, marking a 60% increase compared to the previous year, according to official data. This significant mobilization of private capital was nearly equal to the Bank's own lending, as reported by Group President Ajay Banga during a conversation with AFP at the World Bank's headquarters in Washington.

Banga emphasized that the increasing reliance on private capital is due to the fact that donor countries lack the funds to meet the world's development needs – "We can't be lending $200 billion a year. We don't have it," he stated. He further explained that the Bank's private capital mobilization strategy complements its traditional lending methods, which include low-interest loans and small grants through its International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA).

While the Bank recognizes that its lending through these arms cannot grow adequately, it argues that private capital mobilization is not a replacement for traditional lending but rather an "augmentation" of its work. The World Bank typically directs its private capital towards five sectors that generate jobs: infrastructure and energy, agribusiness, health, tourism, and value-added manufacturing.

However, critics argue that relying on private capital for development can expose public finances to commercial risks and may leave behind low-income or conflict-affected countries that often require the most assistance. Despite these concerns, Banga insists that the private sector mobilization is crucial to addressing the scale of development financing needs.

He highlighted that private capital will only flow if there is a viable return on investment and market demand, and that countries cannot be forced to accept private capital investments. The Bank has employed several strategies to attract private capital, such as providing investors with greater regulatory certainty in emerging markets and taking on some risk through guarantees and seed money in larger funds.

A notable innovation in this approach is the creation of an emerging markets asset class to attract large institutional investors, enabling them to evaluate and invest in multiple projects simultaneously through a standardized rating system.