Africa: To Finance Africa at Scale, Build Its Capital Markets at Home

In a RootsToFoods Capital Series interview, Wasim Tahir, Senior Advisor at ODI Global and former director at British International Investment, explains how development finance actually moves private capital into emerging markets, and why the lasting answer lies in deep domestic capital markets and national development banks.

Ovidiu Bujorean, chief executive officer of OviBees Ventures, spoke with Wasim Tahir, Senior Advisor at ODI Global and Research Fellow at the Harvard Center for International Development, for the third conversation of Wave 2 of the RootsToFoods Capital Series. Tahir spent six years as a director at British International Investment (BII), the UK’s development finance institution, where he developed the institution’s mobilization strategy for bringing private capital into emerging markets. His argument: most of the instruments needed to move capital already exist. What matters is how precisely they are aimed, and whether receiving countries build markets deep enough to finance themselves.

Tahir places private capital on a spectrum. Grant capital from governments and philanthropies sits at one end; development finance capital must earn a return but exists for impact first; impact investing reverses that order; and purely return-seeking capital sits at the far end. Only the last two, he said, count as private capital. With aid budgets cut in the United States, France, the United Kingdom and elsewhere, development finance institutions (DFIs) can keep investing at scale only by bringing private investors with them.

At BII, that meant moving from buy-and-hold to originate-to-share, a shift he describes as largely cultural: the institution once held a stake in a Ugandan bank from the 1960s until its final sale. A DFI adds value by lending for seven to ten years where commercial lenders offer four or five. Once such a loan has aged, it matches what the market provides, and the DFI can sell it and recycle the capital into new deals. Tahir led BII’s first secondary loan sale to an institutional investor, mobilizing $30 million of private capital and setting the template for later sell-downs. The incentives do not always line up, he cautioned: seasoned loans and operating assets past construction risk earn better risk-adjusted returns, creating a pull to keep them on the books.

“It’s like saying you’ve got quite a spicy soup and you drop a bit of milk in to cool it down so more people can eat it. Everyone sort of benefits in some ways.”

Wasim Tahir, Senior Advisor, ODI Global

That is how Tahir describes blended finance. Concessional capital changes the risk-return profile of a whole deal, so it rarely maps onto a single risk, but pools can be ring-fenced for specific purposes, such as demonstrating new technologies or covering country risk. He distinguishes mobilization strategies, which bring private investors over the line, from frontier strategies, which bring DFIs themselves into low-income and fragile states. He wrote the technical proposal for the UN Capital Development Fund’s Investing for Peace initiative, which blends DFI and donor capital into peace-positive companies.

Guarantees, he said, work like scalpels: the risks covered, the amount and who gets paid can all be tailored to make a specific deal happen. And because DFIs cannot reach small businesses directly, a guarantee covering a portion of losses gives a local bank that has only served corporates the confidence to lend to SMEs.

With a growing share of Africa’s investment now coming from the Gulf, he expects more Gulf capital blended with Western philanthropy, citing the five-year, $500 million partnership between the Gates Foundation and the Qatar Fund for Development.

Tahir also argues that the field needs structured, hands-on training rather than another blended finance report, the kind he has delivered to Saudi EXIM Bank and teaches at the Harvard Center for International Development.

Asked which instrument the field still lacks, Tahir gave a deliberately unfashionable answer: many “new” structures repeat what investment banks have done for decades. There is not enough concessional capital to de-risk every deal, and many enabling environments still need work. The lasting solution is to stimulate domestic capital markets, so that savings held by banks, pension funds and insurers flow into local infrastructure, projects and companies. “That is the ultimate holy grail here,” he said.

He would also champion national development banks. DBS, Singapore’s largest bank, began as the Development Bank of Singapore, and the model is returning: Nigeria has established the Development Bank of Nigeria, and the United Kingdom created the UK Infrastructure Bank, now the National Wealth Fund. He also points to borrower-led institutions such as the Africa Finance Corporation, owned by its member countries, and to South-South flows as traditional aid declines.

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