Are Financial institutions properly structured to achieve the 2030 SDGs through financial development?

2. The main problem in determining whether financial
institutions are properly structured to achieve the
2030 SDGs through financial development is being
able to distinguish which one of the few schools of
thought/perspectives is most feasible to attain
them.
In order to ascertain this,information will be based
on four different perspectives/school of thought .

3. Firstly, the collaboration of public social
benefits with private financial benefits
as the way forward to gain recognition
of lending institutions to realise these
goals.

4. Secondly, the perspective that financial institutions
are becoming too institutionalised and for them to
come to the rescue they have to be presented with
criteria that matches their own demands.
Thirdly, some policymakers believe that banks like
the IMF and the MDBs possess the right expertise to
pay particular attention to capital markets, pension
funds, sovereign funds, the bond markets and risk
factors to make the accomplishment a reality.

5. Finally, there is the innovation aspect of
financial development such as philanthropy
and vertical funding which is referred to as
a new school of actors.

6. We begin by firstly examining the collaboration
between public social benefits and private
financial benefits.
Infrastructure financing is essential to achieving
the SDGs. About US$6 trillion a year is needed
yet only US$3 trillion is spent.

7. The private sector only contributes about 400
billion USD, therefore the difference must come
from the public sector without the co-operation,
support and financial capability of the private
sector.
So the paradox is that we have governments all
over the world that need growth capital, and
they need to grow their economies faster, and
infrastructure is a key component to it and there
are 100 concept papers and ideas all over the
world to get this done and yet not enough is
happening. This situation needs great attention.

8. In one of his papers on “the role of private finance in
financing for development”, Jay Collins, a member of
ADDIS, agrees that a shortfall of $3 trillion USD a
year is too much. He feels that this situation
requires a paradigm shift and two of the postulates
are that:
 Firstly, we have to think that financial returns and
social returns co-exist and
 Secondly, that the public sector and the private
sector must collaborate – the public sector has to
hear, hug and embrace the private sector to
achieve risk adjusted returns in many of these
objectives.

9. The second school of thought is that financial
institutions have become too “institutionalised”.
It is true that the financial crisis of 2008 has
been greatly responsible for this; banks today
are operating in a new regulatory environment
which is not “infrastructure friendly”. Banks are
unwilling to finance on their balance sheets,
long duration, and weaker credit project
finance structures.

10. This means we have to turn to the pension funds
and insurance communities that may not have
the expertise that the bank market particularly
in Europe has in structuring and risk.
Risk needs to be segmented. We need to place
components of infrastructure risk to those that
will take it and this will not be an easy task.

11. Jay Collins sees this as a paradox or challenge of the
Rubik’s cube, which is to be able to take,what fits
best on the bank’s balance sheet and in the bank
market and give it to them, what is best for
development banks to them and what is best for
capital markets, insurance companies, pension funds
to them, to really be able to segment risk and
distribute it accordingly.
This must be done in order to be successful. We as
investors and government must play a part.

12. Another school of thought/perspective is that
banks and other financial institutions possess
the expertise to get the goals accomplished on
their own.

13. In April 2015, the Mutli-lateral Development Banks
(MDBs) and the International Monetary Fund (IMF)
presented a joint vision of what we can do within our
respective institutional mandates to support and
finance achievements of the SDGs.
-through individual and collective support to build
upon and scale up financial support and
- through technical assistance and policy advice to
enhance the total contribution that we can make to
global development.

14. The MDBs and IMF multiply the capital
subscriptions and contributions invested with
them to provide a range of financial support and
products to partner countries.
MDBs support has grown from US$50 billion to
US$127 billion annually in grants, concessions and
non-concessional loans, risk-sharing instruments,
guarantees and equity investment.

15. When we consider that the IMF and MDBs plan
to stimulate the achievement of the SDGs by
providing US$400 billion in financial support
for the period 2016-2018, it may appear that
they can achieve the goals on their own.
However, we have already acknowledged that
investors and governments must also have a
role in this effort.

16. Finally, we come to the perspective of the new
actors. The new aid landscape has evolved to
include a number of foundation and non-
governmental organisations.
Private aid today amounts to approximately
US$60-$70 billion per year, equivalent to nearly
half the net ODA disbursed in one year by all
OECD-DAC members.

17. Philanthropy has been growing fast with more than 100
billionaires meeting Bill Gates challenge to leave at
least half of their wealth to charity over time.
Vertical funds are multi-stakeholder global
programmes that provide earmarked funding for
specified purposes. They have proved very effective to
channel assistance to core, but chronically
underfunded development sectors such as disease
eradication and climate change. Many of these were
created in the hopes of attracting substantial
contributions but all remain traditionally dependent on
ODA providers.

18. (Some of these funds are not used effectively,
therefore efforts should be made to manage
these flow of funds more efficiently.)
New development partners are however breaking
out of traditional financing (ODA financing). They
are promoting their own economic and strategic
interests, while at least partially meeting needs
not addressed by traditional donors. This is
welcomed but cannot in itself be sustainable.

19. There is no one school of thought or perspective
described that can attain the SDGs by itself.
Globalisation is necessary for the attainment of
the SDGs.
All stakeholders should participate because
globalisation is necessary for increased financial
assistance; it is the engine behind financial
development. It is the way forward to moving
from billions to trillions and achieving the SDGs.

20. Thus, it is necessary to combine all the
schools of thought/perspectives to be
successful in attaining the 2030 SDGs.

21.  World Bank Group- From Billions to Trillions: MDB
contributions to Financing for Development
 World Bank Group- Private Finance for Development
 www.worldbank.org
 www.aidflows.org