An investment bank for Australia’s aid program
By Clay O’Brien
It was a privilege to be part of 3MAP (the 3-Minute Aid Pitch competition) at the 2018 Australasian Aid Conference. I was very impressed by the other nine wonderful ideas for the Australian aid program. But we are in an age of financial constraint, and the question is: how can we fund these initiatives? And that’s where my idea comes in.
I propose that Australia creates a sovereign development finance institution (DFI) to engage in the growing market for “impact” or “social” investing that is revolutionising overseas aid. A DFI can make loans, take equity and/or provide guarantees to support private investments promoting development.
But why allow the ‘evil’ investment banker into aid? Well, the foxes are in the henhouse already. Bankers have been involved in aid for many decades, notably through microfinance, pioneered by groups such as Opportunity International (started by former Senior Australian of the Year, David Bussau) and Grameen Bank (founded by 2006 Nobel Peace Prize winner, Mohammad Yunus).
It was the first successful impact investment area. An early example is the Mexican microfinance institution Compartamos: one initial investor realised a staggering 134 times its USD1 million investment, over a period when Compartamos grew to reach 660,000 clients, 98% of whom were poor women.
There are at least four reasons why I think establishing an Australian DFI is timely.
First, as we know, Australia’s aid budget is much smaller than it was – and even less than once forecast. Our ODA has fallen from A$5.1 million in 2013-14, which represented 0.33 per cent of gross national income (GNI), to A$4.1 billion in 2017-2018, now equal to approximately 0.23 per cent of GNI. So, it is important to do things more efficiently and effectively.
The UK’s DFI, CDC, has obtained a seven per cent annual return whilst building …read more