financing for development1

Financing for Development

Made by:Naveed Naushad

The first three words of UN

charter‘We the people’.

What is Development?

Development is life in peace

Development is a life without povertyDevelopment is life without inequalitiesDevelopment is respect of human rights

Peace Development

There is no development without peace and they will not be achieved without respect of human rights.

Sectors previously seen as domestic or national now become international such as:

Agriculture

Transportation

Energy issues

Global warming

What are the Sustainable

Development Goals?

The sustainable development Goals (SDGs) are a new, universal set of goals, targets and indicators that UN member states will be expected to use to frame their agendas and political policies over the next 15 years.

These goals reflect that we need:

Peace

Development

Respect of human rights

Sustainable Development Goals is the vision that will guide us to take the right steps.

These steps have to taken by

Nations

Communities

These Goals have to be understood and fought for by the people affected by them

Issues achieving in these goals:

•Transfer of technology•Migration•Urbanization• Industrialization

Sustainability and Universality come together:

•Clean Energy•Sustainable cities and communities•Responsible consumption•Protect the Earth•Life below Water•Life on Land

We are now all in the same boat, we either sink or swim together.

Combination of Strong

leadershipKnowledgeable

citizensDown – Top

methods

Implementation of SDGs:

MANAGING MONEY

In terms of financial management, we need to use every last dollar, available as affectively as we can.

FINANCIAL INSTRUMENTS

1.Grants2.Concessional loans3.Regular loans4.Guarantees

•Low income countries fragile•Conflict affected countries

Grants/Concessional

Loans

•Middle Income Counties

Regular Loans

TAILARING FINANCING TO SPECIFIC DEVELOPMENT NEEDS

HOW MUCH FINANCING WILL BE NEEDED

Trillions of dollars every year across the world, Depending upon the needs of each nation.

The goals are interrelated , Goals affect each other.

Smart spending on education, will also help the health goals because educated girls will find ways to have their own kids and

each other be more healthy as they grown up.

Where this money come from?

1)Taxes2)Savings of people

DOMESTIC RESOURCE MOBILIZATION

‘The generation of Savings from domestic resources and their allocation to economically and socially productive investments’.

•50 %– 80% Finance to support SDGs will come from Domestic resources.•These resources must be used optimally.

What are the constraints in mobilizing domestic resources?

• Issues with tax administration• Weak capacity for implementation• Obtaining effective and efficient tax

policy• Non involvement of Substantial govt.• Fiscal Centralization

How can we increase the Domestic Public Resources?

• Cutting Subsidies (like on fuels), and used this money on other infrastructure projects like Indonesia.

• Instead of applying more resources in order to achieve SGGs we can raise funds through

• Better Spending and Better Policy• Involvement of citizens about resource

allocation their awareness is also be required.• Cash Transfer• Co-operation of Technology and its application

Taking maximum benefits from Cash Transfer

1) Relax regulations for small remittances. Government should recognize that small remittances are not money laundering

2) Abolish exclusive partnership with post office. Instead Govt. should promote competition so remittance cost will go down.

3) Create a large non – profit remittance platform by philanthropic organization.

4) Illegal recruitment fees a huge drain on remittance flows.

5) Harness the power through investing in project bonds like Bullet Train, Schools, Hospitals.

ODA (Official Development Assistance

ODA is defined as government aid designed to promote the economic development and welfare of developing countries. Loans and credits for military purposes are excluded. Aid may be provided bilaterally, from donor to recipient, or channeled through a multilateral development agency such as the United Nations or the World Bank. Aid includes grants, concessional loans and the provision of technical assistance.

Source: OECD-ilibrary.org

•About 135billion$ in total ODA is going to Developing countries.•We also need to look how IDA is distributed among developing countries.

Why ODA is so important?

Smarter use of ODA will lead to:

1)As a stimulate source of finance makes direct impact on health and education.

2)Serves as a pool to attract private sector.3)As a means of mitigating risk in certain

environments. If is used in very creative fashion way.

Remittances

Saving 500billion$

Project Bonds

Schools

Bullet train

Hospitals

Power generation

1. Tax evasion2. Exporting capital illegally

Reducing illicit financial flows

HOW CAN WE AVOID THEM?• Promote E-tax filing• Develop an automation system of cross-

verifications that can help reduce incidence of tax fraud, cleansing and updating the databases through use of third-party data.

• Limit the amount accepted as Cash transfer by countries giving grants.

• Speed up the process of Tax filing and registration process.

• Speed up the audit timing.

IMPROVING THE INVESTMENT CLIMATE

1) Maintain a stable Macro economic environment climate.

2) Reduce hindrances to doing business like speed up the process of acquisition of shares, land, bonds etc.

How can we remove such obstructions?

• Simplify registration• Improve tax administration• To try and speed up

acquisition of asset processes.

• Stable Law and order situations

Role of Private Finance in financing for Development

• Estimated shortfall of funding the SDGs is 3 trillion dollars.• So, The involvement of Private

Sector is necessary in this matter

YOU CAN DO GOOD AND WELL AT THE

SAME TIME

We need to think that financial returns and social returns can co- exist.

The public sector has to bear hug, and embrace the

private sector in a way that enables the private sector to

achieve risk – adjusted returns in many of these

objectives.

Public Sector

Private Sector

Private sectors can come up with new models, innovation in finance

The Demand for Infrastructure1. Infrastructure is a key component for growing

economies faster2. The private sector is contributing only 400 billion$ in

the shortage of 3trillion$ investment in infrastructure.

6 trillion$ investment needed annually

3 trillion@ investment actually made

To fill the shortage of 3trillion $ investment We have to turn to:

•Capital markets•Pension Funds•Insurance companies•Developments banks

BLENDED FINANCEBlended finance is a mixing of Public sector social returns objectives + private sector financial return objectives.

Public sector mitigates risk in way that allows Private sector to participate in infrastructure projects

Financial returns

MIGA (Multilateral Investment Guarantee Agency)

•MIGA is one of the largest single components of blended finance solutions in the world.•It brings ODA into Private sector funded structures.

We have to mobilize capital as the end objective. Smaller amount of riskier capital can catalyze multiples of

capital.

Smaller amount of riskier capital

Mobilized capital

A construction project need 100Million$. Development Bank will contribute 20M$ while

Private sector will contribute 80M$.

Development Bank

Private Sector

20Million$ 80Million$

POTENTIAL OF INSTITUTIONAL INVESTORS IN DEVELOPMENT

Who are institutional investors?

1.Large Pension Funds 2.Sovereign wealth funds3.University and Foundation

endowments

Equity Markets 17trillion$

Bond markets 14 trillion$

Excess money

And the need is only 3trillion$ in infrastructure.

Why are institutional investors interested in emerging markets?

1) High returns2) Diversification

•They have a need to have return•High return (6 – 10% range) in emerging marks

•Emerging markets have:

High Growth + High inefficiency

Return

Diversification

•Uncorrelated assets•Sometimes emerging markets moves along with other equity markets, and sometimes it does not move along.

So, what would attract these institutional investors

1.Rule of Law2.Fair treatment and equal access3.Assessment of economic,

political and social risks

SECTORS THAT OFFER INSTITUTIONAL INVESTORS GOOD INVESTMENT

OPPORTUNITIES

1.Transportation2.Education3.Health4.Telecommunication5.Energy sector

OBSTACLES IN DELIVERING THE EFFICIENT INFRASTRUCTURE PROGRAMS

1) Closed economies – inhibits the free movement of people or money.

2) Trust on Court system – government intervenes in court’s decision

3) Ability to convert local currency into foreign currency.

4) Frequent changes in government - leads to inconsistency.

5) Limitations on Exchange controls

Exchange controls

Getting currency out of

the country

Limitations

Often prohibit

Limit that

Inhibit from happening

refers to

Setting a plan

•Some form of unit must be available, as a regulator within the government to implement the plan, to monitor it.•Accountability component.•Stable Legal and Regulatory environment.

To be Transparent as possible to general public about what they are doing.

Why our decisions are so important?

Role of Private

Philanthropy in

Development

What Private Philanthropy looking for?

To make a difference through relatively

small but risk relevant resources..

How can private philanthropy contribute in this regard?

Take risk with new technologies

• new solutions or something different

Bet on new approaches to well known problems that unlocks

Philanthropy can make a greater

contribution but measuring in just terms of the number of dollars

in probably mistaken

FINANCIAL INSTRUMENTS USED BY PHILANTHROPY

1)Grants2)Equity investments3)Guarantees4)Debt buy downs

EQUITY INVESTMENTS

Private Philanthropy

So, Private philanthropy do no get any profit,

They plow anything that is made in the form of

loan or equity participation.

DEBT BUY DOWNS

Cost of Loan = 2Million$

Loan = 25Million$

Cost of Loan(2M$)

Buy down by Private

philanthropy

If govt. will meet down the expected targets Loan (25$)

The End