"Mobilising private capital is no longer an option"

In Kenya recently, an executive from an agri-food SME drew my attention to a paradox that has become all too commonplace. Their business creates jobs, processes local raw materials and contributes to regional food security, yet their application for funding to double production capacity was rejected by all five banking institutions to which it was submitted in 2025. Not because the business was not viable, but because it fell into the “blind spot” in the local financial system: too small for the banks, too large for microfinance. At a time when Treasury bills were offering a risk-free return of 16%, local savers were opting for security.

This situation neatly sums up the challenges facing development finance. To meet the essential needs of emerging and developing countries, there is now a funding shortfall of US$4,000 billion, a figure that has jumped 60% between 2015 and 20251 . Without significant action, this shortfall could exceed US$6,400 billion by 2030, according to OECD projections. At the same time, both national and international public resources are under pressure. Official 1 Source: Global Outlook on Financing for Sustainable Development 2025, OCDE. development assistance, which amounts to less than US$200 billion annually, declined by more than 20% between 2024 and 2025. As for local public resources, fiscal room for manoeuvre remains limited in many emerging economies due to poor tax collection processes, a large informal economy or a narrow tax base.

In this context, mobilising private capital is no longer an option: it has become an absolute prerequisite. Only by ensuring that public and private resources complement one another can the widening gap be bridged. However, a twofold asymmetry persists: the bulk of global financial assets remain concentrated in developed countries, while local savings are relatively untapped in emerging economies. Pension funds, insurance companies and local banks nevertheless represent a considerable source of funding, which is still far too often channelled away from the productive economy. In Africa, less than 3% of pension fund assets – which amount to several hundred billion dollars – are invested in local infrastructure, while Africa’s needs total nearly US$170 billion dollars a year.

So the time for hesitation is over. The only real question is, how are we going to mobilise private capital – particularly at local level – where needs are most pressing? This imperative must be our overriding objective. For beyond the financial sphere, this is also an issue of sovereignty, which can only be strengthened when development is rooted in the realities and resources of countries themselves.

Several obstacles explain why private capital is still not flowing sufficiently into emerging economies. On the supply side, local savings do exist but they are often channelled into property, liquid assets or Treasury bills. Local institutional investors are constrained by regulatory frameworks that limit their ability to invest in infrastructure or private equity, as well as by a lack of suitable investment instruments. Foreign capital, meanwhile, tends to favour the most mature emerging economies, held back by a perception of risk, exacerbated by a lack of reliable information.

On the demand side, high-impact projects do exist but are not always structured to attract investors. Insufficient depth in bond markets, a lack of transparency in information and the absence of credit ratings are all factors that fuel a perceived risk that is often greater than the reality of the underlying fundamentals.

It is precisely in this area that development finance institutions play a decisive role. Their purpose is not to replace the market, but to create the conditions for it to function: reducing information asymmetry, absorbing part of the initial risk, and demonstrating the viability of innovative business models. Their role is evolving: from long-term financiers, they are now becoming catalysts. By co-investing with local or international players, they enable the latter to access segments in which they would not have been able to invest on their own. By guaranteeing certain risks, they lower barriers to entry. By committing to a project at an early stage, they send out a message of credibility that attracts other financiers.

The recent example of AFINHAB (formerly CRRH-UEMOA) illustrates this nicely. In May 2025, this institution issued the first regional social bond dedicated to affordable housing in West Africa. By positioning itself as lead investor and subscribing to CFA 7.5bn (African Financial Community franc (CFA)) worth of bonds (approximately €11.5 million) ahead of the transaction, Proparco sent out a strong signal to the markets. The issue was oversubscribed by local institutional investors, demonstrating that local savings can be mobilised when conditions are right. Affordable housing was therefore financed in local currency, without any exchange rate risk, while giving a long-term boost to the regional bond market.

There has been a tangible shift in the role of development institutions. In 2025, Proparco invested €2.5 billion in nearly 200 projects. This support has had tangible impacts: 1.5 million jobs were either created or safeguarded, more than 72,000 micro, small and medium-sized businesses were supported, and 4 million people connected to the electricity grid. Around 40% of its activity focused on co-benefit climate financing. For the first time, the “one-for-one” target was achieved, i.e., for every euro invested, one euro of private capital was mobilised.

According to the OECD, Proparco jumped to third place among bilateral development finance institutions (DFIs) in terms of private capital mobilisation in 2024, behind the US bilateral agency USDFC and the DEG.

The implementation of our strategy has resulted in a diversification of our instruments: greater use of guarantees, bond issues, blended finance designed to adjust the risk-return profile, and equity investments. The Kipeto wind farm, 70 kilometres from Nairobi, is a good illustration of this multiplier effect. An equity commitment of US$15 million alongside French firm Meridiam made it possible to structure a 100 MW project that will supply nearly 500,000 people with clean energy. This initial investment has encouraged the participation of local and international private co-investors who would not have signed up to the project on their own. As this example demonstrates, a credible institutional signal can significantly reduce perceived risk.

This approach also applies to the most fragmented segments of the economy. In 2025, the Choose Africa initiative mobilised €450 million through a network of partner banks, supporting tens of thousands of micro-businesses and SMEs. But this mobilisation cannot be based solely on isolated initiatives. It requires a root-and-branch overhaul of financial ecosystems: the development of bond markets, regulatory reforms, capacity-building for asset managers, and improvements in transparency and credit ratings. This is where the complementary roles of Proparco and our parent entity, AFD, come into their own: one works with private sector players, while the other focuses on the public frameworks that make such financing possible. These synergies create the conditions for sustainable mobilisation of private capital.

In certain contexts, this mobilisation and actions are still too limited. While middle-income economies attract more private capital, the least developed countries remain much more difficult to finance. Here, projects present a less attractive risk-return profile for investors; financial markets are in their infancy, and institutional frameworks are more fragile. Concession financing therefore remains essential to create the conditions for a future knock-on effect. Private mobilisation must not be an end in itself: it is the combination of tools, tailored to the realities of each country and sector that makes the difference.

But beyond the financial mechanics, it is the very purpose of this mobilisation that we need to bear in mind. The paradox is now clear: the world has never had so much savings at its disposal, including in emerging economies, and yet an increasing share of these resources remains disconnected from the most essential needs. The challenge therefore is no longer simply to mobilise more capital, but to channel it towards the productive economy in a more effective way. Financing infrastructure, SMEs or the energy transition is not merely a development issue: it is also a prerequisite for economic, social and geopolitical stability. Mobilising both local and international private capital is no longer a technical matter reserved for financial specialists. It has become a strategic issue. It now determines societies’ ability to withstand shocks, bridge divides and preserve their stability. In a world where crises are never confined to a single region, strengthening the resilience of others is also a prerequisite for our own resilience.