“Transparency matters. It helps ensure that government money is being used fairly and efficiently, not for private gain at public expense. And it reassures citizens and the private sector alike that this is the case. Development finance is too scarce and too valuable to be distributed in the dark.” – Charles Kenny, Center for Global Development

Introduction

With the changing nature of the aid and development landscape, Development Finance Institutions (DFIs) are playing a more prominent role. New or expanding DFIs are also coming on board – Canada launched FinDev in January 2018 and the US has just created the US International Development Finance Corporation, which will double the size of its previous development finance tools. DFI operations, however, are often opaque, leading many to call for greater transparency. These discussions have largely been focussed at a macro level, such as providing global principles and policy recommendations, rather than going to the granular level. With our ten years of aid transparency expertise, we now want to take the discussion to this level and, with a clear understanding of the operations of DFIs, show where transparency can be improved in real, practical terms.

Knowing who is spending what, where and to what effect is essential to making development finance more effective and accountable. Without such information:

• Donors are unable to harmonise their operations, leading to duplication and gaps in funding
• Partner country governments may be unaware of incoming development finance when allocating their own budgets, hindering their own effectiveness
• Civil society organisations (CSOs) and policy makers in both donor and partner countries cannot be sure that promised funds are spent well

We have been central to the aid and development finance transparency movement since 2008. To date, much has been written on the transparency of DFIs by leading thinkers from organisations, including Eurodad, ODI , and CGD.  As we wrote in our 2018 Aid Transparency Index, an increasingly complex and diverse aid and development financing landscape is developing where DFIs are expected to play a more prominent role. However, since the transparency movement emerged, these major institutions, operating with a slightly different model than other bilateral donors, have sometimes struggled to demonstrate their added contribution to and impact on development, especially in an open, transparent and comparable manner. The 2018 Aid Transparency Index results demonstrate that this is no longer the case for some, with DFIs as a group generally performing above average.

Figure 1. 2018 Aid Transparency Index results for development finance institutions

Much of the existing literature lays out positive roles that DFIs can play within the international development context and the principles by which they should be transparent and accountable both in terms of decision-making and actual operations. For example, Eurodad propose five core elements for transparency; a right to access information; automatic disclosure of information; limiting exceptions; a right to request information; and access to information about decision-making processes.

Getting into the detail

Today Publish What You Fund is launching a DFI transparency initiative.  We will build upon the work of academics, practitioners and policy-makers who have gone before us as well as our own engagement with DFIs through the Aid Transparency Index as we seek to better understand DFIs’ business models[i].

We embark on this journey with a sense of humility that we still have much to learn about this space.  We are encouraged, however, that the DFIs and other stakeholders with whom we’ve spoken have expressed a genuine desire towards improving transparency.

The initial stage of our scoping will aim to provide a better evidence-based picture of where greater levels of transparency are necessary and then to seek alignment amongst stakeholders as to where improvements can be made.

Our intention is to broaden the scope of our research beyond the seven DFIs which featured in the 2018 Index (and indeed beyond those that currently publish to the IATI Standard). While we still need to define our criteria for inclusion, it is likely we will look at both public and private sector DFIs as well as those whose budgets have grown significantly in recent years.

Our goal is to determine where increased transparency can support better decision-making and public accountability versus where it may jeopardise DFIs ability to attract investees and deliver change on the ground. To do this effectively, we plan to take the transparency discussion to the granular level. This means focussing on what DFIs are doing (operations), how they are doing it (funding mechanisms) and the difference they are making (development impact).

Many of the questions around the best way to structure and monitor investments go beyond the remit of Publish What You Fund. However, the information needed to answer these questions will be at the core of this research. At the same time, we recognise and appreciate that much of the work undertaken by DFIs is commercially sensitive and may require a balance between transparency and protection of competitive information.  The open contracting movement should provide both guidance and examples of best practice.

There is a lot to explore here, and we’re not 100% sure where this work will lead. We will, however, remain agnostic in terms of the actual investment strategies adopted by DFIs. Instead, we will focus our energies on gauging to what extent DFIs are able to demonstrate their contribution to improved development outcomes through the publication of transparent, available and usable data.

Why Publish What You Fund

Over the past ten years we have established constructive and open relationships with a broad range of donors and DFIs. We have both supported them in their efforts to increase aid transparency levels while concurrently holding them to account via the Aid Transparency Index process.

We want to apply our expertise in analysing, visualizing and presenting aid data and financial flow information to the development finance context. We believe that our combination of practical experience, research and advocacy in the aid arena can transfer to the broader development space, helping to bring about wider transparency and more transformative change.

[i] Much of this work being led by Elise Dufief, Research Manager at Publish What You Fund