WHAT IS A DEVELOPMENT FINANCE INSTITUTION?

This briefing by the Center for International Environmental Law and Oxfam examines the role of Development Finance Institutions (DFIs) and the systemic risks associated with their lending through Financial Intermediaries (FIs) rather than direct project investment.

• Development Finance Institutions (DFIs) operate with a dual mandate to generate profit for stakeholders while achieving public policy goals, specifically poverty reduction. The International Finance Corporation (IFC) provides Performance Standards for environmental and social safeguards that serve as a benchmark for other DFIs, such as the UK's CDC and the Dutch FMO.
• Lending through Financial Intermediaries (FIs) creates a transparency gap compared to direct DFI investment. While direct investments require extensive public disclosure, the public has almost no access to information regarding high-risk activities funded via FIs. For example, the IFC's transparency requirements for 'Category A' (highest-risk) sub-projects only require disclosure of name, location, and sector once a year for private equity projects, omitting impact assessment information.
• DFIs often fail to leverage their influence as 'anchor investors' to ensure positive development outcomes when using FIs. Because FIs are profit-motivated and identify their own projects, the DFI's influence typically diminishes after funds are disbursed, often resulting in a failure to reach the poorest populations or protect natural resources.
• The use of FIs often shifts the responsibility for managing environmental and social risks away from the DFI. Many FIs lack the experience of DFIs in implementing safeguards, such as community consultation, leading to inadequate protection for local communities and indigenous peoples.
• The GMR Kamalanga Energy Limited (GKEL) coal mine project in India illustrates the risks of FI lending. Financed by the IFC via a $100m investment in the India Infrastructure Fund (IIF), the project involved the acquisition of 486 hectares of land, displacing nearly 1,300 families. Complainants alleged a lack of livelihood restoration plans, poor consultation, and the use of violence and intimidation.
• The IFC's investment in the Altima One World Agriculture Fund (AOWAF) via a 'special vehicle' allows the fund to invest in projects that might otherwise be excluded from IFC funding. This has led to concerns regarding the Argentine company El Tejar's plans to plant soybeans and corn in Mato Grosso, Brazil, an area where the IFC has noted that soy expansion contributes to the annual destruction of natural vegetation.

APA

Thilakasiri, S., Nash, R., & Perrault, A. (2012). WHAT IS A DEVELOPMENT FINANCE INSTITUTION? Center for International Environmental Law. https://www.ciel.org/wp-content/uploads/2015/06/RiskyBusiness_English_US.pdf

Chicago

Thilakasiri, Sasanka, Rob Nash, and Anne Perrault. WHAT IS A DEVELOPMENT FINANCE INSTITUTION? Center for International Environmental Law, 2012. https://www.ciel.org/wp-content/uploads/2015/06/RiskyBusiness_English_US.pdf.

Wikipedia

{{cite report |last1=Thilakasiri |first1=Sasanka |last2=Nash |first2=Rob |last3=Perrault |first3=Anne |title=WHAT IS A DEVELOPMENT FINANCE INSTITUTION? |publisher=Center for International Environmental Law |date=April 2012 |url=https://www.ciel.org/wp-content/uploads/2015/06/RiskyBusiness_English_US.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{thilakasiri2012what, author = {Thilakasiri, Sasanka and Nash, Rob and Perrault, Anne}, title = {{WHAT IS A DEVELOPMENT FINANCE INSTITUTION?}}, institution = {Center for International Environmental Law}, year = {2012}, month = apr, url = {https://www.ciel.org/wp-content/uploads/2015/06/RiskyBusiness_English_US.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }