On Friday, President Trump signed the “BUILD Act” into law that will create a new US development finance institution (DFI) to replace the Overseas Private Investment Corporation (OPIC) – that has been the country’s DFI since 1971.
The Better Utilization of Investments Leading to Development Act (BUILD Act) will see the creation of the U.S. International Development Finance Corporation (IDFC) that will take over the work of OPIC and combine with the credit development authority of the U.S. Agency for International Development (USAID).
IDFC has a mandate to catalyse private sector capital that will measurably improve social and economic conditions around the world and unlike OPIC, it will have the ability to make equity investments or investments denominated in local currencies.
Fran Seegull, Executive Director at the U.S. Impact Investing Alliance, explains: “This will put it on par with European and Asian development finance institutions which have been able to use equity for many years. Currently, OPIC can make loans and some loan guarantees, but by not having equity or technical assistance in its toolkit it has been harder for it to partner with other DFIs. Also other DFIs have been larger than OPIC in relative and absolute terms.”
The IDFC’s annual financing budget will be $60bn, almost double that of OPIC’s $29.5bn.
One of the reported reasons Trump backed the initiative is to challenge China’s growing overseas influence. The Act’s co-sponsor, Democratic Senator Chris Coons, said on Twitter that IDFC would “compete with Chinese influence in the developing world”.The IDFC also has a mandate to create jobs in the United States and half of the American companies it partners with on investment opportunities will be small business including women and minority owned businesses.
IDFC must also focus on the least developed countries and will create the position of ‘chief development officer’ to oversee its commitment to labour and environmental standards, and engage with private investors.
Seegull says the new IDFC will play a role in accelerating impact investing: “From GIIN (Global Impact Investing Network) data in the US 75% of impact investing capital is invested domestically and 25% in in emerging markets. The inverse is true for the European market where the majority of impact investment goes to emerging markets. What supporters of the legislation are expecting to see is that private capital is catalysed off the side-lines and into emerging markets in partnership with the IDFC.”
The BUILD Act had bi-partisan support and was co-sponsored by Senator Coons, Senator Bob Corker, Congressman Ted Yoho and Congressman Adam Smith.
Its one of a string of impact-investment related policies signed into law by President Trump this year including the Social Impact Partnerships to Pay for Results Act and Investing for Opportunities Act.