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Wagons Ho! Let's Journey Toward Understanding Mobilizing Private Capital

Authored by

Lawrence Camp
Lawrence Camp
Senior Advisor

Lawrence Camp is a Senior Advisor at USAID in the area of mobilizing finance for development, with a background in commercial lending and corporate finance.

Lawrence Camp is a Senior Advisor at USAID in the area of mobilizing finance for development, with a background in commercial lending and corporate finance.

You just got used to the term “private sector engagement” only to discover that it is “so 2013,” and now everyone is talking about a new buzzword: “mobilizing private capital.” “What the heck does that term mean?” you ask. “How do you do it?”—“And why is it even on the Microlinks site?” 

All fair questions. 

In response to these perplexities, Microlinks is launching a mini-blog series to make us all mobilizing private capital (MPC) experts. Hopefully, it will also clarify why MPC is important and elicit new ideas about how the Microlinks community can engage in MPC.

First, a caveat: We (USAID’s private capital practitioners) don’t have the answers. We have some thoughts, but the goal of this series is to solicit the answers from the community of practice – you, the readers. So during this series, we will be posing a series of questions regarding mobilizing private capital. As the blog host (or “wagon master”), we get to take the first shot at answering them, but our responses are intended to solicit your answers and ideas as well as to foster discussion.

Our hope is to engage with the Microlinks community (and with the MPC stakeholders outside the Microlinks community) to shape the debate and build consensus on MPC so that it provides broad-based, inclusive benefit. And where there are differences regarding how to go about this goal, we hope to frame the different perspectives. 

Responses are welcome (actually, eagerly encouraged), and we seek blog entries that can contribute to and illuminate the debate (including entries on interesting and innovative approaches with lessons to be drawn).

So with that background…let’s wade right in.

Why should you care about mobilizing private capital anyway? “Private capital” sounds like something the one percent is interested in…and certainly not our Microlinks community!  

Well, that is the fundamental question. At its base, MPC entails using public funds to encourage investment that will result in private profit – but which will also have a development impact. You might be thinking that this is all well and good but that the development and assistance community has lots of other uses for our precious development dollars. For example, we can flow them through implementing partners for tried-and-true economic development/poverty reduction initiatives, such as supporting financial literacy, building saving groups, creating market linkages, and fostering women empowerment (and, of course, a myriad of other assistance initiatives associated with healthcare, democracy, etc.). We can use them to develop new digital financial services applications and capital microfinance institutions. We can spend them for Development Credit Authority guarantees to encourage the extension of credit to underserved groups. We can spend them for training and even for blogs like this one. 

Given the many other ways to spend our development dollars, the key question for this series is then: Why spend them to encourage private investment rather than on traditional development activities? 

Here are some proposed answers to provoke comment, thoughts, outrage, and feedback (and, generally, to get the dialogue rolling):

  • Sustainable economic growth results from productivity improvement. Productivity improvement requires investment. And most investment requires financing. There are benefits to “teaching a (wo)man to fish,” but lending that person the money to invest in a boat with a fish finder is going to be a more effective way of ensuring they can put fish on the table.
  • Hands-on development initiatives are expensive. Maybe the private sector can be a better steward of and implementer for our development dollars. Or maybe not. But either way, isn’t it worth exploring?
  • The development community may be able to get more leverage from our development dollars. Why should we cover the full cost of building crop storage facilities when five percent contribution might be sufficient to bring in a private developer to build it instead?

Microlinks has a great deal of territory to cover in the MPC blog series, so we welcome you into the wagon train as we begin our long journey toward understanding. In the coming weeks, we intend to cover a range of topics to include:

  • What does “mobilizing private capital” mean?
  • Why is MPC important and something that USAID and other donors should support (and, as a subtopic, how does MPC impact poverty reduction – or does it)?
  • When should we use development resources to facilitate or encourage private capital investment in our development objectives (and, as a subtopic, how do we factor in social objectives when considering which transactions we want to facilitate, and how do we ensure that benefits are equitably distributed)?
  • How can we accomplish it (or, what are the various ways we can facilitate private capital investment – and which seem most effective)?
  • Who are the agents that should be engaging in MPC (and, as a subtopic, what is the role of implementing partners)?

Microlinks looks forward to the input of the Microlinks community regarding whether and why development dollars should be spent on MPC. We encourage you to make a comment below or to send an email directly to microlinks@microlinks.org. What are your impressions of and ideas about MPC? When, how, and by whom should MPC take place?

And as your wagon master, we bid you, “Saddle up and wagons ho!” 

 

Next Up: Head 'Em Up and Move 'Em Out! Rounding Up Private Capital in Financial Inclusion Territory