2018 Business

DFIs and Development Impact: an Evaluation of Swedfund

Justin Flynn, Peter O'Flynn, Stephen Spratt

In a new EBA report, Sweden’s Development Finance Institution Swedfund  is evaluated for the first time in a decade. 

Swedfund is the Development Finance Institution of the Swedish state.Swedfund has the task of investing in poor countries through equity acquisitions in individual companies, through funds or through lending.

Investments in companies to achieve developmental effects are becoming increasingly important in development cooperation. Swedfund has the task of investing in poor countries through equity acquisitions in individual companies, through funds or through lending. In the report DFIs and Development Impact: An Evaluation of Swedfund authors Stephen Spratt, Peter O’Flynn and Justin Flynn investigate if recent investments have helped to reduce poverty.

They find some indications of this and provide a number of recommendations for how positive effects can be enhanced further. The researchers suggest that Swedfund should strengthen its focus on low-income countries and the sectors with the greatest development

TO COPE WITH THE ENHANCED INVESTMENT RISK THIS ENTAILS THE RESEARCHERS PROPSE THE FOLLOWING TWO STRATEGIES:

1.

Swedfund becomes a more specialist DFI focusing on high-risk/high-impact investments, but accepts that this will increase losses in the portfolio, and require regular capital injections from government to support this

2.

Swedfund expands and develops a more diversified portfolio to mitigate risk. This would enable the focus on high-risk/impact investments to continue within the context of a more diversified portfolio. While this would make it possible retain financial self-sufficiency, it would require a large, one-off capital injection.

The researchers recommend that Swedfund should focus on a small number of core impact objectives, and design as few indicators as possible to track these impacts.  Two such core impact objectives are paid taxes and
employment in the companies in which they invest.


AUTHORS

Stephen Spratt is a Research Fellow and Leader of the Green Transformations Cluster at the Institute of Development Studies.

Peter O’Flynn is a researcher at the Institute of Development Studies.

Justin Flynn is a research officer and current doctoral researcher at the Institute of Development Studies.