Investment for development:
The UK’s strategy towards Development Finance Institutions

Written evidence prepared by Acumen for submission by February 3, 2023

  1. Acumen is pleased to submit the following evidence to the UK’s International Development Committee based on our interactions and observations working with the British International Investment (BII).
  2. Acumen is a nonprofit investment fund that supports businesses whose products and services are enabling the poor to transform their lives. The premise that launched our organization over 20 years ago is the recognition that neither markets nor aid alone can solve the problems of poverty. Our goal is to invest “Patient Capital” to bridge the gap between the efficiency and scale of market-based approaches and the social impact of pure philanthropy. Our feedback below is based on our experience working with social entrepreneurs, development aid institutions, philanthropic organizations, impact investors, and development finance institutions.


  1. Question 1: What are the British Investment Partnerships (BIPs) and what are their objectives? What role does British International Investment (BII) play within them?
  2. Acumen understands that British Investment Partnerships are the means by which the UK government works with private sector partners (investors, pension funds, sovereign wealth funds) to mobilize up to £8 billion of UK-backed financing a year by 2025 to advance financing for development.
  3. British International Investment (BII) is the UK’s development finance institution that works across sectors in Africa, South Asia and increasingly Indo-Pacific and Caribbean markets. BII’s role is to mobilize third party commercial investors, including sovereign wealth and pension funds for specific efforts like Climate Finance, Just Energy Transition Partnerships, Infrastructure Projects, etc.
  4. In Acumen’s interactions with BII, we have seen some strong examples of BII crowding in private banks into a space or sector that would be deemed too risky. The $75m Standard Bank Group, Citi, Norfund and CDC Group transaction with Greenlight Planet Kenya, a leading solar energy business in Africa, is one good example. These types of transactions, where BII mobilizes other financiers, is a critical role that DFIs are uniquely suited to achieve. We would also like to see more sustainability-linked financing from BII, where the success metrics are linked to the impact performance of an investment as well as the financial performance.
  5. Question 2: How does the BII’s strategy align with the FCDO’s development agenda?
  6. According to the House of Commons Library Research Briefing from December 22, 2022, the  UK Government aims for BII to form part of a “network of liberty” that brings more countries into the “orbit” of free-market economies and acts as a competitor to Chinese investments. As a development finance institution, the BII uses UK aid funding and the BII’s existing assets to invest in businesses and programs in low- and lower middle-income countries. Its investments are intended to generate a return.
  7. The UK Government also desires more and closer bilateral partnerships that support countries to succeed as open, free nations. To underpin this, FCDO is substantially rebalancing its ODA investments towards bilateral channels. By 2025, FCDO intends to spend around three‑quarters of its funding allocated through country programs. This will allow FCDO to focus funding on UK priorities and control exactly how taxpayers’ money is used to support these.
  8. BII’s new strategy for 2022-2026 has three priorities: productive development (eg, job creation), sustainable development (helping countries respond to climate change) and inclusive development (promoting gender equality and alleviating poverty).
  9. These support several of the UK government’s foreign policy priorities:
    1. Competing with China to deliver investment in Africa and Asia. China’s foreign lending is criticized for its high interest rates.
    2. Increasing the UK’s engagement in the Indo-Pacific as well as Africa to address climate change, promote trade, and address poverty.
    3. Providing climate finance to help countries adapt to climate change and mitigate its impact. This may focus on lower-middle income countries, where emissions are rising faster than in low-income countries.
    4. Supporting the empowerment of women and girls, by increasing their economic security.
  10. Where Acumen sees an opportunity to better align BII’s strategy with FCDO’s development agenda is in risk taking. BII’s investments are designed to generate a return, so too often impactful projects may be overlooked because they are in volatile, risky markets. The mandate of a DFI is to aim for financing projects that can have outsized development impact. We have seen too many cases where the return expectations are prioritized over the developmental impact. We commend BII for increasingly allocating some of its FCDO funding for truly catalytic, high-risk projects. We see potential for BII to be a global leader in demonstrating to other DFIs how these financial innovations can catalyze impactful and financially sustainable businesses that tackle some of the world’s most intractable challenges like climate change, poverty, and gender equality.


  1. Question 3: How does BII’s strategic outlook compare with that of other comparable overseas institutions?
  2. BII operates among a cohort of other DFIs including U.S. International Development Finance Corporation (DFC), the participating G7 and European DFIs (EDFI, in which BII is included), DEG, FinDev Canada, CDP, Simest, Proparco, JBIC, JICA, Norfund, Swedfund, BIO, COFIDES, Finnfund, IFU, OeEB, SIFEM, and SOFID. Multilateral institutions like the World Bank, Asian Development Bank, European Bank for Reconstruction and Development, Inter-American Development Bank, African Development Bank, and more recently, the Asian Infrastructure Investment Bank, also play a significant role in financing development projects overseas.
  3. Overseas institutions each have their own mandates, but all aim to support transparent and sustainable private investment in priority sectors essential to development. Shared priorities include climate, health, gender equality, and digital connectivity.
  4. BII has begun to differentiate itself from the others by dedicating more of its capital to catalytic investments (Catalyst, Kinetic, etc.) where capital preservation or very low interest rate expectations make higher risk transactions possible. Acumen would like to see BII taking more of these risks.


  1. Question 4: How effective are the governance structure and internal oversight mechanisms of BII (e.g., oversight over direct investments, fund investments, BII controlled companies)?
  2. According to the House of Commons Library Research Briefing from December 22, 2022, the Foreign, Commonwealth and Development Office is the sole shareholder and owner of BII. It has oversight through shareholder meetings and other engagements. It can also attach conditions to any capital funding. As an organization focused on development, the BII is accountable to the UK’s Independent Commission for Aid Impact (ICAI), the Commons International Development Committee, and the National Audit Office.
  3. Acumen has limited experience with these internal oversight mechanisms. We do see an opportunity for those with oversight over direct and fund investments to encourage BII to evaluate transactions based on their potential impact performance, as well as financial performance. BII has an opportunity to take a leadership position among other DFIs in how it prioritizes and values impact results. In our limited experience, we have seen BII teams overlook outside-the-box investment opportunities with the potential for outsized impact perhaps because top management is operationally organized more around a traditional banking approach with limited consideration of impact results that could be achieved.


  1. Question 5: How is BII’s budget determined? How does the budget inform BII’s programme of work and to what extent can BII scale up or scale down on its investment activity?
  2. According to the House of Commons Library Research Briefing from December 22, 2022, BII uses UK aid funding and the BII’s existing assets to invest in businesses and programs in low- and lower middle-income countries. Its investments are intended to generate a return.
  3. From 1999 to 2015 the CDC was self-funding, meaning it used its assets and investment returns to fund its investments. From 2016/17 to 2021/22, the UK Government planned to inject around £3.6 billion into the CDC. These capital investments represented around 3% of the annual budgets of the then Department for International Development.
  4. Historically, CDC investments tended to focus more on stable and middle-income countries. In 2011, 25% of its portfolio was in fragile and conflict-affected states. This grew to 41% by 2017.
  5. In 2016, the CDC was criticized by the National Audit Office (NAO) for insufficiently demonstrating it made a “lasting difference” to the world’s poorest.
  6. The Independent Commission for Aid Impact (ICAI) has found a lack of evidence that DFIs have had a significant impact on poverty reduction. In 2019, it judged there were “mixed levels of engagement” in reaching the poorest people but noted improvements by 2021.
  7. These results seem to suggest that increased focus on impact over return expectations could help BII advance the productive, sustainable, and inclusive development it aims to promote. The capital injections from FCDO should enhance BII’s risk appetite to support an impact-first approach in risky markets. BII could also do more to crowd in other funding by accepting first loss provisions in exchange for insisting that facilities do more to impact the poor and vulnerable.
  8. Question 6: How are the decisions of BII’s management scrutinised? What transparency is there over BII’s performance monitoring and reporting?
  9. According to the House of Commons Library Research Briefing from December 22, 2022, as sole shareholder and owner of BII, the FCDO can provide oversight of its operations through annual shareholder meetings and other engagements. It also appoints the BII’s chair and some directors.
  10. In addition, the BII’s policy on responsible investing requires beneficiaries of its investments to adhere to certain environmental, social, and business standards, including on human rights. Beneficiaries must report at least annually to the BII on their adherence to these standards. And, as an ODA-eligible organization, BII is accountable to the UK’s Independent Commission for Aid Impact, the Commons International Development Committee, and the National Audit Office.
  11. While details of individual UK aid projects are published on the FCDO’s Development Tracker website (for their programs and evaluations) and as part of the FCDO’s annual statistics on international development (for spending), only some past CDC activity is reported this way. The CDC’s most recent list of projects on the International Aid Transparency Initiative’s (IATI) website was updated in 2019. BII also publishes a list of the investments on its website.
  12. It seems that with these reporting protocols in place, BII is taking necessary steps to make its investments transparent. However, we were not able to find detailed information on how the performance of those investments are monitored and reported. This may be an area for improvement and an opportunity for BII to prioritize monitoring and reporting on the impact of its investments, in addition to the amount disbursed and risks associated with those investments. We know that other DFIs also are focused on increasing transparancy, and believe that there will be a call for this across the development sector. Moreover, our experience has reinforced the power of building trust at the institutional level through transparency from both sides of the partnership.
  13. Question 7: What criteria does BII use to determine investment decisions and how are financial returns balanced with achieving impact?
  14. The new investment strategy for the BII, in place from 2022, intends to measure the impact score of an investment, including how the investment reaches poor and marginalized people. A public annual impact scorecard will be published.
  15. This commitment to disclosing the impact scorecard is good progress. The next step would be to incorporate that impact score into the investment decisions to ensure that impact is weighted with a higher or equal priority as financial returns. A balanced investment portfolio would include projects that score high on impact as well as those that score high on financial returns. This is especially important given the enormous influence BII has amongst other DFIs.
  16. Question 8: How do external events influence the investment decisions of BII (e.g., in response to the crises in Afghanistan and Ukraine, the depreciation of Sterling etc.)?
  17. While Acumen does not have insight into how BII’s investment decisions are influenced by external events, we would hope to see capital targeting development gains being deployed more rapidly in the face of dire economic and security shocks where hard-won progress and lives are at risk. These events only reinforce the need for more risk taking in times of macroeconomic instability because whatever level of suffering felt in the UK, it is almost certainly compounded in fragile, conflict-affected and developing countries. We greatly appreciated BII’s willingness to step up during the COVID outbreak to co-lead the development of the Energy Access Relief Fund, a global partnership of 16 governments, foundations and investors that came together to provide essential financial support to energy access companies in sub-Saharan Africa and Asia.

  18. Question 9: What due diligence does BII undertake prior to making investment decisions and how does this compare with best practice?
  19. To date, Acumen’s only experience with the BII due diligence process was when BII invested $15 million in the Energy Access Relief Fund. Acumen, which co-led the development of the fund with BII, was impressed with the diligence undertaken. The focus on financial rigor and sustainability, as well as environmental, gender, governance, and inclusion protocols, were commendable. BII set the bar in many cases, leading the diligence process in collaboration with the other DFIs and senior investors in the facility. When there were concerns about the quality of the selected fund manager, BII took appropriate action and were transparent with the other co-investors about their approach to mitigating those concerns.
  20. Question 10: What current investments does BII hold?
  21. BII publishes a list of the investments on its website. Acumen has been a co-investor alongside BII in two transactions: PEG Africa ($12.5 million from BII for local currency working capital debt to expand operations over four years) and the Energy Access Relief Fund, which was not listed on the website, but included a $15 million contribution of concessional debt.
  22. Question 11: How effectively does BII manage funds following its initial investment?
  23. N/A
  24. Question 12: How does BII evaluate the impact of its investments?
  25. According to the House of Commons Library Research Briefing from December 22, 2022, the new investment strategy for the BII, in place from 2022, intends to measure the impact score of an investment, including how far the investment reaches poor and marginalized people. A public annual impact scorecard will be published.
  26. Evaluations of the CDC/BII from the National Audit Office, DFID 2016, welcomed increased oversight of the CDC by the Government and cited similar issues to the ICAI (below), namely lacking demonstration of its development impacts. The Independent Commission for Aid Impact (ICAI) reviewed CDC’s investments in low income and fragile states, 2019-2021. This awarded the CDC an initial score of amber/red on its investments but found “better progress” by 2021.
  27. Measuring impact is core to Acumen’s investment approach. In fact, we undertake impact studies during due diligence before investing in a business to ensure that we understand its impact. We would encourage BII to not only measure and report on the impact results of its investments publicly, but to use that impact information to inform its investment approach. As a DFI designed to advance productive, sustainable, and inclusive development impact, it is essential that the impact of its investment be understood before the investment is deployed. This requires listening to customers, including the poor and marginalized, and incorporating their feedback into the investment decision making process.