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International Development Committee


Investment for Development: the UK’s strategy towards development finance institutions


FCDO Written Evidence




How can development finance have an impact on poverty reduction and sustainable development outcomes?

BII place within the wider development finance architecture

What is the evidence that underpins BII’s impact?

1.              What are the British Investment Partnerships (BIP) and what are their objectives? What role does British International Investment (BII) play within them?

2. How does the BII’s strategy align with the FCDO’s development agenda?

2.1 Overall strategy ambition

2.2 Climate objectives

2.3 Women and girls

2.4 Geographic expansion

3.              How does BII’s strategic outlook compare with that of other comparable overseas institutions?

4.              How effective are the governance structure and internal oversight mechanisms of BII (e.g., oversight over direct investments, fund investments, BII controlled companies)?

4.1 Governance

4.2 BII’s Oversight of investments

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?

6.              How are the decisions of BII’s management scrutinised? What transparency is there over BII’s performance monitoring and reporting?

6.1 Accountability

6.2 Transparency

7.              What criteria does BII use to determine investment decisions and how are financial returns balanced with achieving impact?

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.)?

9.              What due diligence does BII undertake prior to making investment decisions and how does this compare with best practice?

10.              What current investments does BII hold?

11.              How effectively does BII manage funds following its initial investment?

12.              How does BII evaluate the impact of its investments?




1.   Sustainable, inclusive and productive economic growth is essential for overcoming poverty and achieving the UN’s Sustainable Development Goals. No country can prosper or move beyond reliance on aid without it. For this growth to have lasting, resilient impact, it must transform economies, create jobs and private sector investment, and spread benefits inclusively.

2.   Promoting global prosperity is one of the strategic priorities of the UK Governments International Development Strategy which aims to help countries get the investment they need to grow secure, open, thriving economies. This approach puts key elements of the UK’s national economic power at the centre of our development approach: capital markets, investment and growth expertise.

3.   The UK Government’s International Development Strategy (IDS) is a central part of a coherent UK foreign policy. The principles of free markets, free trade, effective institutions, free speech and shared technology have underpinned development advances over recent decades. At the same time, global challenges threaten development progress – from climate change and biodiversity loss to the pandemic, which pushed millions into poverty. Success means unleashing the potential of people in low and middle-income countries to improve their lives. When people have more power and choice, populations become more prosperous, peaceful, and healthier.

4.   The IDS sets out the UK Government’s approach to spurring economic growth and poverty reduction through transforming economies and ensuring that growth delivers for all. Within this strategic framework, FCDO has a role to use public resources where markets have failed and provide patient capital to support pioneering investments that create jobs in the most challenging markets. This in turn will raise the incomes of poor women and men and reduce poverty.

5.   As the UK’s Development Finance Institution, British International Investment (BII) (formerly CDC Group) invests long-term patient capital in private companies in developing countries to deliver lasting development benefits. BII demonstrates the financial viability of investing responsibly where markets are fragile or have failed to create jobs, catalyse private investment and drive sustainable economic growth. BII will directly support FCDO objectives by delivering £7.5 - £10 billion of high quality, sustainable, productive and inclusive investments across a range of sectors – from renewable energy to frontier digital infrastructure – over BII’s 2022-2026 strategy.

6.   Covid-19 has significantly increased development needs, with 100 million additional people entering extreme poverty in 2020-21.[1] It has brought on the deepest global economic contraction in decades, with Africa experiencing its first recession in 25 years.[2] Climate change has become the climate emergency[3] and macroeconomic risks have grown with government debt surging in its largest single-year increase on record. Globally, government debt stood at a five-decade record of 97% of GDP and, in emerging market and developing economies (EMDEs), at a three-decade record of 63% of GDP in 2020.[4]

7.   Interest rates have increased raising the costs of borrowing and placing pressure on national budgets making it increasingly difficult for low-income countries to service their debt. About 60 percent of low-income developing countries are already at high risk of or in sovereign debt distress (although BII’s investments do not affect these sovereign debt levels, as BII only invests in private companies).[5] In addition, the Russian invasion in Ukraine is significantly exacerbating pre-existing inflationary and fiscal pressures globally, through rises in global food, energy and other commodity prices, which is undermining political and economic stability in many neighbouring countries and developing countries. This strain is particularly being felt by those countries which are most dependent on wheat imports and imported fuel, highlighting the need to reduce dependency on fossil fuel imports and accelerate the transition to renewables.

8.   At the same time, some of these global challenges represent new opportunities for development finance to have impact. For example, the urgency for countries’ transitions to net zero is bringing about a range of innovations in renewable energy provision, sustainable agriculture, forestry and land use and new green technologies representing potential investment opportunities. The UK Government’s Integrated Review of Security, Defence, Development and Foreign Policy (2021) made tackling climate change and biodiversity loss the UK government’s number one international priority.

9.   Africa has the fastest urban growth rate in the world. Research by the OECD indicates that by 2050, Africa’s cities will be home to almost a billion additional people.  As these cities grow, it’s important that the appropriate urban infrastructure, from roads and transport systems to water and waste management systems are in place. The continued rapid rate of urbanisation across many markets in Africa and South Asia is creating new private sector opportunities to proactively address these challenges to make cities safer, more sustainable and better connected. While over 3.5 billion people around the world are still unconnected, technological evolution is speeding up exponentially. For example, in 2020 3.8 billion people used smartphones compared to 1.06 billion in 2012. In sub-Saharan Africa, smartphone use is predicted to accelerate rapidly from 44 percent user penetration in 2019 to 65 percent in 2025[6] representing a huge potential for BII to support the digital infrastructure which is needed to embrace this trend.

10. However, at a time when there is an increased need for development finance to address these challenges, global finance for development more broadly is under extreme pressure and at risk of decline.[7] For example, the Organisation for Economic Co-operation and Development (OECD) estimates that the Sustainable Development Goal (SDG) financing gap may balloon from $2.5 trillion to $4.2 trillion, with a $700 billion annual reduction of private capital inflows to countries eligible for official development assistance (ODA).[8]



How can development finance have an impact on poverty reduction and sustainable development outcomes?


11. Development finance is broadly defined as the use of public sector resources to facilitate private sector investment in developing economies where the risks are too high to attract purely private capital, and where the investment is expected to have a positive developmental impact.[9] Development finance is typically channelled through specialised government-backed bilateral (national) or multilateral (international) Development Finance Institutions (DFIs) which then invest in targeted private enterprises. The primary role of DFIs is to reduce poverty over the long run, changing the economic environment by growing the more productive formal sector through private investment.[10]


12. Development finance supports poverty reduction through several channels:

  1. First, development finance investments create jobs, and boost productivity while increasing tax receipts needed to finance public expenditure and anti-poverty programmes.
  2. Second, development finance investments provide goods, services and economic opportunities that directly benefit lower income populations. For example, BII investments in solar home systems like M-Kopa and Greenlight Planet[11] have improved energy access for 38 million people in some of the hardest to reach places; and BII’s investment in agri-technology company, CropIn[12], has improved income for millions of smallholder farmers by providing data of crop health.
  3. And third, development finance supports poverty reduction through the longer-term benefits from the structural economic shifts that its investments support. For example, investing in broadband connectivity to under-served communities not only provides direct access to digital services but also raises the overall productivity of those economies, unlocking more and better paid economic opportunities for those in poverty as a result. The culmination of this targeted development finance helps to create the economic foundations required to lift people and countries out of poverty in the long-term.


13. Evidence shows that investment more broadly, including investment facilitated by development finance institutions, is fundamental to driving lasting poverty reduction and leaving no one behind. Analysis of countries which have had sustained, high growth suggests that overall investment rates of 25% of GDP or above are needed, counting both public and private. Whereas average Investment rates in Sub-Saharan Africa have been persistently between 15-20%.[13] A recent study by BII finds that the relationship between investment and poverty reduction is strong enough that if Kenya’s investment rate were to rise to equal that of Bangladesh, from around 20 per cent of GDP to around 30 per cent, it could lead to a halving of the gap between their poverty rates within two decades.[14]


14. Furthermore, the World Bank estimate that the doubling of investment rates is associated with a 2% increase in the rate of GDP growth.[15] Research shows that a 10 percentage-point increase in the ratio of private credit to GDP could lead to a 2.5–3.0 percentage-point reduction in poverty incidence. Specifically, investment in labour-intensive productive sectors generates higher levels of poverty reduction.[16] The majority of the poorest and most marginalised people work in the informal sector with limited prospects for moving from subsistence to higher productivity activities. Investment to create more and better jobs is needed to give people the income, opportunity and dignity to live better lives and leave poverty behind.


15. In addition, alongside significant public investment, private investment – including DFI investment - is critical in supporting the transition to a zero-carbon economy, building economies that protect and restore biodiversity, and helping society adapt to climate change. DFIs are increasingly pushing the frontier on Paris Agreement-aligned financing commitments that drive growth in low carbon industries. DFIs can crowd in other investors into these nascent sectors – such as green transport and green hydrogen particularly in some of the hardest to reach markets where traditional investors are reluctant to enter, supporting their low carbon growth ambitions.


16. And finally, investment is important for increasing competition for firms, creating better jobs for low-income people, or reducing the prices of goods and services that consumers consume and reduce inequality. Over the long run, these investments play a critical role in reducing poverty by promoting economic transformation into higher value-added industries and increasing the productivity of firms – resulting in higher wages and higher household incomes.


BII place within the wider development finance architecture


17. There is a range of development finance vehicles operating in the global landscape from larger, multilateral International Financial Institutions (IFIs) like the World Bank, to bilateral DFIs like BII, to private foundations and economic development organisations making smaller scale development investments. The FCDO engages across various aspects of the development finance architecture.

18. The FCDO is a shareholder in the World Bank Group and Regional Development Banks, all of which have tools for direct investing in the private sector in developing countries and the FCDO is continuing to require these organisations to use their balance sheets more effectively and to step up their actions to mobilise more investment, including particularly in fragile states.

19. The UK is also engaging Multilateral Development Banks and Development Finance Institutions to scale their direct lending and mobilisation of high-quality finance. For example, through the Room to Run Guarantee, announced at COP26, the UK is enabling the African Development Bank (AfDB) to provide up to $2bn of additional lending over four years to governments and businesses across Africa for tackling climate change. The UK is also working with G7 and wider counterparts to engage MDBs on taking forward the recommendations of the G20 Capital Adequacy Framework Review, which could unlock hundreds of billions in additional high-quality MDB lending without requiring additional shareholders capital.

20. Alongside these multilateral channels, the FCDO has a role to use public resources where markets are fragile or have failed, to use development capital to create jobs, catalyse private investment and build markets in challenging settings. As the UK’s development finance institution, British International Investment is the FCDO’s principal partner in doing so, complementing work through multilateral and regional development banks as well as other ODA-funded organisations such as the Private Sector Infrastructure Development Group (PIDG).

21. Since BIIs reform in 2010, and over its last two strategy cycles (2012-16, 2017-2021), BII has scaled up its operations and adapted its mandate and strategic objectives to place it at the heart of the development finance architecture. A number of these changes were a result of the IDC 2011 inquiry into CDC which included the following findings that have shaped the institution.

      1. Need for more comprehensive indicators to assess development impact, poverty reduction and employment generation. 
      2. "CDC Frontier" - introduce a separate portfolio with lower rates of return and focus on reducing poverty, and a mix of financing instruments (grants and loans).  Focussed on pro-poor development.
      3. BII should look at direct equity investments - needs to be done responsibly.  DFID offices need to work closely with CDC as it goes into higher risk places.
      4. CDC should not spread itself too thinly - BII should diversify investment tools slowly and ensure it has sufficient expertise.  Should concentrate on what it can do best vis-a-vis other UK instruments and DFIs.
      5. Investments should be targeted at key sectors (ag, infra, SMEs) to improve development impact. 
      6. Geographically CDC needs to avoid overconcentration in middle income countries and target the poorest areas in these countries; CDC should make a contribution to poverty reduction in a wider set of geographies that DFID.
      7. Need closer collaboration between DFID and CDC, though division of accountability should remain clear. 

22. As a result, over the recent two strategy cycles BII has developed a set of financing tools and a track record of BII holding a higher risk appetite than most other DFIs (see further detail in Question 3). It has also developed a set of wider range of financial products, with a continued focus on equity investments, that complements other DFI products. BII’s Catalyst portfolio holds a 30% loss risk appetite allowing BII to invest in frontier market solutions and address persistent market failures. Within the development finance architecture BII products bridge the gap between commercial returns and grant funding and provides much needed equity financing to companies to support growth.

23. Private equity investments, in particular, have an important role to play by actively supporting businesses to (i) expand their operations in poorer regions, (ii) expand their products and services to new/different customer bases, (iii) support innovative and disruptive business models, as well as (iv) improve environmental, social and business integrity standards – thereby contributing to economic growth through job creation, service provision and tax revenues. By taking equity in a company, rather than debt, this helps to build the company’s resilience to economic shocks without the pressure of debt servicing – making it a higher risk, high impact development finance instrument.


What is the evidence that underpins BII’s impact? 


24. Over the previous strategy period, the FCDO delivered independent evaluations for BII’s largest sectors: infrastructure and financial services. These evaluations showed that BII is effectively delivering development impact across these two sectors which constitute 30% and 27% of BII’s portfolio respectively. A third study into BII’s SMART sectors (services, manufacturing, agriculture, real estate and telecoms) is currently in its inception phase.

25. The independent evaluation of BII's infrastructure portfolio combined investment data and external sources, and used six evidence rules[17], which quantified each subsector with a development outcome (for example the rule that a 1% increase in broadband penetration can lead to a productivity increase between 0.1% and 0.7%), to estimate the development impact of the portfolio. BII investees covered by the scope of the report: reached 152 million consumers, or one in every twenty people living in Africa and South Asia; supported 3.5 million indirect jobs and 32,200 direct jobs; generated US$17.6 billion of value added annually; and avoided 16,000 kt of carbon dioxide. The report also identified four 'sweet-spot' countries (Uganda, Cameroon, Cote d'Ivoire and Kenya) where BII had the most significant development impact (see box). In these countries BII investees have a relatively large impact i.e. contribution to GDP and employment and BII has deployed a substantial amount of capital relative to the total amount of private investment in infrastructure.

26. The independent evaluation of BII's financial institutions (FI) portfolio found that 78% of the FI portfolio was either on track or had outperformed the transactions development impact thesis: the portfolio supported 178,300 jobs, 30% of investments were being invested in A/B countries (the poorest and most fragile geographies); 47 of the 88 investments were identified to have a clear offering to underserved segments; and across all investments, the share of female borrowers has increased 8-fold from 1,014,000 in 2013 to 8,188,000 in 2019.


27. Case studies from the evaluation from India, Bangladesh and Nigeria highlight BII’s role in demonstrating the importance of high environmental, social and governance (ESG) standards and the growth of the wider private equity market in India over time.  


28. In addition to these evaluations, BII systematically monitors the impact of its investments through BII’s Development Impact framework [addressed in question 8] to assess progress against its impact objectives and reports this impact in BII’s public Annual Reviews. Over BII’s previous strategy period (between 2017 – 2021), BII committed almost £7 billion to more than 600 impact-led investments[18]. In turn, these investments:


29. In BII’s most recent Annual Review,[19] it reports that in 2021 alone, the companies that BII is invested in:















1.    What are the British Investment Partnerships (BIP) and what are their objectives? What role does British International Investment (BII) play within them?


30. British Investment Partnerships (BIP) are a central pillar of the UK’s International Development Strategy. They encompass partnerships both with developing countries that require investment for sustainable economic development and with developed countries that aim to provide a comparable investment offer into developing countries both in terms of size and quality of investments.

31. BIP represents the UK’s commitment to stronger, more transparent economic partnerships facilitating high-quality investment in developing countries. They aim to deepen economic and development ties globally and increase the extent to which developing countries can benefit from private sector led growth. BIP also encompasses investment in clean energy transition, including under our Just Energy Transition Partnerships (JETPs). 

32. Through BIP, we aim to increase UK-backed financing for investments in developing countries, partnering with capital markets and sovereign wealth funds to co-invest in projects and provide scale. By building on existing capital market partnerships and driving new ones, we hope to ensure a step change in how the UK helps developing economies access new capital for investment both directly into the private sector and into sovereign governments for their public financing.

33. Our model is one of clean and reliable finance, characterised by high investment standards, transparency and reliability - honest and responsible investment and trusted expert advice. We will drive up environmental, social and governance standards to tackle illicit finance and poor transparency and promote compliance with those standards.

34. BIP also represents the UK’s contribution to the G7 Partnership for Global Infrastructure and Investment (PGII). The PGII was announced during the UK’s G7 Presidency in 2021. G7 Leaders subsequently stated at their Summit in June 2022 that the PGII would aim to mobilise up to $600bn of honest, reliable finance over five years. 

35. BIP brings together the UK’s economic development offer which consists of tailored packages of finance, technical assistance and technology transfer to partner countries as part of our BIP toolkit. We have begun to deliver BIP by bringing together resources from FCDO, DIT, and UK Export Finance, and working with like-minded partners. We have launched a toolkit consisting of five pillars: development finance; export finance; concessional finance; guarantees; and expertise. We are moving rapidly to build on the footprint and instruments we already have, delivering real world impact, including through the work of British International Investment, and ODA managed by FCDO. The toolkit is not yet fully operational but will become more operational over the rest of this Spending Review period, including through the formal launch of our Centres of Expertise (CoEs).

36. The main instruments currently at the core of our approach are:


37. Each instrument provides complementary products with BIP providing an overarching strategic coherence, coordination, knowledge exchange and learning.

38. Kenya is a good example of where a combination of UK technical assistance, export guarantees, Private Infrastructure Development Group (PIDG) and BII investment is being drawn on to deliver coherent, timely and scalable development interventions, providing a credible alternative to initiatives such as China’s Belt & Road. In November at COP 27, UK Prime Minister Sunak and Kenyan President Ruto agreed to jointly fast-track a range of new flagship green investments worth £3.4 billion. This includes £141m of BII backed investments into solar and geothermal energy projects, an £81m development of Nairobi’s new central rail station to be backed by UKEF and a guarantee vehicle through PIDG that uses £12m of UK funding to mobilise $100m of private sector climate finance for public and private infrastructure over the next 3 years.


What role does British International Investment (BII) play within them?


39. As the UK’s development finance institution, BII is at the heart of the British Investment Partnerships initiative’s aim to support sustainable growth. BII will directly support BIP objectives by aiming to deliver £7.5 - £10 billion of high quality, sustainable, productive and inclusive investments across a range of sectors – from renewable energy to frontier digital infrastructure – over BII’s 2022-2026 strategy. BIP will leverage BII’s deep investor expertise, market knowledge and responsible investing standards – providing a distinctive, high quality UK investment offer into developing countries.


40. Over the next 5 years, BII will deepen its investment footprint in Africa and South Asia and enter new markets in the Indo Pacific and Caribbean utilising BII’s experience and expertise in climate finance with investments with a climate focus supporting BIP objectives to invest and mobilise clean and responsible finance. The geographic expansion was developed in consultation with BII and has an economic development and poverty reduction objective which has resulted in a subset of countries being targeted for an initial phased approach (Vietnam, Laos, Cambodia, Indonesia and Philippines). BII will utilise its expertise in climate innovation and equity investments. BII has opened an office in Singapore to facilitate a regional presence. This is consistent with their offices in Africa, such as Egypt and Kenya, that also serve the region.  BII will not be investing in Singapore.


41. Building on BII’s mobilisation track record, having mobilised $2 billion of private capital in 2021 alone, BII will continue to co-invest with like-minded partners to scale impact and mobilise private finance in the markets that need it most over the next 5 years. For example, in 2021 BII co-developed the Africa Resilience Investment Accelerator (ARIA) platform alongside other leading G7 DFIs to boost investment in fragile and conflict-affected states in Africa, such as Sierra Leone.


42. BII’s products and sector wide approach will provide a unique development finance offer within the BIP initiative to meet the range of challenges faced by developing markets. This includes investment in clean and green infrastructure, health systems and security, developing digital solutions, and advancing gender equality. BII’s offer is underpinned by a strong climate and gender focus, with a target that at least 30% of new investments are in climate finance, and at least 25% have a ‘2X Challenge’ gender lens – supporting G7 commitments to invest a further $15 billion over the next two years to support women’s economic empowerment.


43. In addition to the UK-Kenya example above, BII’s private sector partnerships include its recent collaboration with British company, Vodafone, within the Global Partnership for Ethiopia consortium to bring better and more affordable access to digital services in Ethiopia. The telecoms license awarded to the consortium in 2021, underpinned by BII’s $220 million commitment, will enable Safaricom Ethiopia to expand mobile services to 25 cities across the country. This expansion is expected to open more inclusive access to digital health, agriculture, education and skills services for the first time to approximately 24 million Ethiopians by 2032.








2. How does the BII’s strategy align with the FCDO’s development agenda?


2.1 Overall strategy ambition


44. As BII’s sole shareholder and funder the FCDO sets the strategic direction and key operating parameters of BII. Recognising the long-term nature of the investing activity BII undertakes, the FCDO sets these strategic directions across five-year periods. BII’s current strategy, covering the years 2022-2026, was developed in collaboration with the FCDO over 18 months to align with the FCDO’s development agenda. Drawing on key UK Government objectives, the strategy will see BII embark on an investment programme to support development that is productive (raising the productivity of an economy), sustainable (growth that reduces emissions, protects the environment and adapts to the changing climate) and inclusive (sharing the benefits with poor and marginalised sectors of society) in its markets. The focus remains on development impact with each investment required to develop an impact thesis aligned with BIIs new impact framework, a leading development impact scoring methodology (further detail below).


45. Key aspects of the strategy include:


46. The delivery of BII’s five-year strategy is a prominent part of the UK Government’s International Development Strategy (IDS, published in May 2022). As set out above, BII is also at the heart of delivering the UK’s IDS under the British Investment Partnerships agenda – one of four key UK development priorities, in particular supporting women and girls and driving work on climate change, nature and global health (further detail below). The IDS emphasises BII’s core role in delivering high quality, sustainable investments in developing markets, mobilising third party capital and supporting the UK’s position as a global financial centre, in turn helping countries get the investment they need to grow secure, open, thriving economies.


47. BII’s strategy also supports the strategic priorities set out in the UK Government’s Integrated Review of Security, Defence, Development and Foreign Policy, published in 2021. BII does this by:


2.2 Climate objectives


48. BII’s 2022-2026 strategy demonstrates increased ambition to deliver impact-oriented climate finance. BII’s Climate Strategy, published in 2020, is aligned with the objectives set out in HMG’s 2019 Green Finance Strategy and was shaped by inputs from across Government (predominantly former DFID and BEIS), as well as engaging with other investors and civil society (such as BOND). BII’s Climate Strategy sets out its approach to achieving Paris Alignment, centred on three key building blocks: i) reaching a Net Zero emissions portfolio by 2050; ii) supporting a ‘just transition’ to low carbon intensive activities; and iii) strengthening BII’s investment in Adaptation and Resilience (A&R) solutions. 


49. Key areas of alignment between BII’s Climate Strategy and the FCDO’s climate objectives:

50. BIIs climate change strategy will see it deliver across all three of its building blocks including:

      1. Decarbonising BII portfolio by employing a ‘carbon budget’ approach but crucially not offset the emissions of BII investment portfolio by buying carbon credits from the market. Instead, BII have chosen to reduce emissions across their portfolio and only balance any residual emissions from harder-to-decarbonise sectors by proactively investing in solutions that produce negative emissions, such as forestry.
      2. Addressing the negative effects of job losses in highly polluting sectors is an important element of the just transition approach. BII’s focus on a just transition will be to help as many companies and communities to reap the opportunities of the new green economy by focusing on job creation, and reskilling and upskilling for roles in green and resilient sectors in the new economy.
      3. BII will work with their portfolio companies to help identify risks and opportunities, and then implement strategies for those businesses to adapt and be resilient to the changing climate. Alongside this, it will increase their investment into solutions that deliver adaptation and resilience of sectors, businesses, communities and people.


51. BII has identified climate change-related investment opportunities across each of their priority sectors and products, alongside physical and transition risks for each sector (in line with TCFD – Task Force on Climate-Related Financial Disclosures). This includes investments in energy, transport, water & waste management, food & agriculture, forestry, manufacturing, construction & real estate, and financial institutions and trade finance. As well as investing directly across these priority areas, BII will also seek to invest in climate-focussed investment funds in each area, and where possible will encourage each fund manager to adopt the TCFD as a risk management framework. 


52. BII’s recent climate investments include a new partnership with New Forest, Norfund and Finnfund to launch the Africa Forestry Impact Platform. This platform aims to mobilise $500 million of additional investment over the next 3 years to increase the supply of sustainable timber products, increase carbon sequestration and support rural livelihoods across Africa – directly supporting FCDO and the UK’s ICF goals. Another example is BII’s $75 million recent investment in an innovative ‘Green Basket Bond’ programme, which will provide green loans to Micro, Small and Medium Enterprise (MSME) banks across Africa, Asia and the Indo-Pacific to unlock capital for small-scale green projects – such as rooftop solar energy – supporting BII’s climate finance footprint expansion across strategic markets for FCDO.


53. BII is part of the UK’s wider climate offer. It has and will continue to play a central role in the delivery of climate finance. Through its Climate Change Strategy, BII is committed to achieving net-zero by 2050. Since 2018, BII has committed $1.7 billion in climate finance. The FCDO and BII are focused on delivering a just transition. This requires a move away from fossil fuels as well as extending energy access to the 600m people without power in Africa. To do this, BII has committed to ensuring 30% of all investments are dedicated climate finance; and in line with HMG’s policy, has banned investment in the vast majority of fossil fuel sub-sectors with very limited exceptions, such as where an investment would be part of enabling a transition to a net-zero economy. The intent of BII’s fossil fuel policy – which is aligned with HMG’s policy - is to ensure that any investment under these limited exceptions helps – rather than delays or diminishes – the transition to renewables. Gas is not viewed as ‘transitionary’ simply because it can be considered ‘cleaner’ than other fossil fuels - any gas power investment would have to be assessed as Paris-aligned which follows a stringent assessment of country and asset level as set out in BII’s Gas Guidance tool.


54. Understanding individual country plans in achieving net-zero is essential in ensuring a just transition. For example, BII’s investment in the Temane gas project in Mozambique, (where 7 out of 10 people are without access to power[20]), is aligned with this commitment as it is central to Mozambique’s energy transition. When operational, the Temane project, which was developed and invested in by an independently managed company, Globeleq, in which BII is the majority but not sole shareholder, is expected to meet the electricity needs of 1.5 million Mozambicans and support the creation of 14,000 jobs. The project’s flexible technological operating configuration and the interconnecting transmission line allows for greater penetration of intermittent renewables across Mozambique’s grids over time. This includes the various solar, wind and battery projects Globeleq is developing in Mozambique. Furthermore, Temane is technologically capable of transitioning to green hydrogen fuel when that becomes available.


2.3 Women and girls


55. BII’s strategy focus on gender-smart investing directly supports FCDO’s development agenda on women and girls. Anchored by BII’s 25% gender investing target, BII is a champion of the ‘2X Challenge’ gender investing initiative and an anchor member of the ‘2X Collaborative’ of organisations spearheading investment to support women’s economic empowerment. In the lead up to the G7 Leaders’ summit in June 2021, BII, along with the other members of the 2X Challenge, committed to investing a further $15 billion over the next two years to help women in developing markets access high quality jobs and build resilient businesses.

56. In 2021, 28% of BII’s investment commitments were 2X qualified, such as BII’s backing of India’s first dedicated Green Growth Equity Fund (GGEF). The GGEF mainstreams a gender lens across its investment strategy in line with its comprehensive gender action plan – including women filling 30% of senior management positions and comprising 54% of the workforce. With the economic and social impacts of climate changing disproportionately affecting women, BII has collaborated with 2X partners to develop the ‘Gender and Climate Taskforce’ to drive progress on both gender equality and climate, producing a Gender-Smart Climate Finance Guide for Investors launched at COP26.


2.4 Geographic expansion


57. Under its new 5-year strategy, in addition to its core focus in Africa and South Asia, BII is pursuing a gradual – climate focussed expansion into ODA- eligible markets in the Indo-Pacific region. This expansion directly supports the UK Government’s ‘tilt’ towards the Indo Pacific as set out in the Integrated Review.

58. BII’s expansion will target climate finance opportunities that support its sustainable development strategy objective to help economies reduce emissions, protect the environment and adapt to the changing climate. This includes a focus on: renewable energy, water management, resource efficiency, sustainable agriculture and forestry, green infrastructure and transport. BII opened a regional office in Singapore in September 2022, which will be the hub office to support investment origination in regional markets.

59. BII’s new strategy will also see its geographic mandate expand to support sustainable economic development in the Caribbean as part of the British Investment Partnerships Toolkit. BII will look to provide financing to support sustainable economic development across Small Island Developing States in the region. For example, BII recently announced its first investment in the Caribbean into the SEAF Caribbean SME Growth Fund to provide much needed equity to SMEs with strong potential to create and increase income-generating opportunities across Caribbean Common Market (“CARICOM”) countries.

60. To accelerate its impact in the region, BII will primarily invest through partnerships and intermediaries, leveraging their knowledge and expertise to deploy capital across multiple sectors, including renewable energy and financial services. Working with partners will enable BII to play a role in influencing the wider market in adopting high standard ESG, development impact and sustainability goals.

3.    How does BII’s strategic outlook compare with that of other comparable overseas institutions?


61. BII partners, co-invests and collaborates with a number of DFIs in order to achieve scale, utilise complementary products and drive thematic agendas such as climate and gender. This is only possible with complementary mandates and strategic outlooks. BII’s increased ambition in climate, including adaptation and resilience, its commitment to Paris alignment, and leadership in gender finance and focus on fragile states aligns itself with its partners.


62. BII is comparable to other larger European DFIs with total assets as at 31st Dec 2021 of £7.8bn in comparison to Proparco (France) (£5.6bn), DEG (Germany) (£6.2bn) and FMO (The Netherlands) (£8.2bn). BII is a leader across DFI’s in investing in the hardest markets and with the riskiest products (equity). 70% of BII’s portfolio is in direct and fund equity, in comparison to 21% for Proparco, 44% for DEG and 34% for FMO and 3.5% for US DFC the USDFI. BIIs focus on the poorest and most fragile markets saw 72% of its investments in 2021 in Africa compared to 21% of investments by DEG and 53% by Proparco,


63. BII leads and partners across a number of DFI collaboration forums, that pull together like minded DFI’s across thematic and strategic objectives including:


64. BII’s mandate and structure (being wholly owned by FCDO) enables it to focus on the poorer, fragile regions, take on more risk and provide much needed direct capital to businesses. This is different to other comparable DFIs who have different ownership structures and risk appetites. BII has the highest portfolio percentage in both equity products (70%) and invested in Africa (60%) compared to other DFIs. This different risk appetite, and product suite, enables BII to partner with DFIs and the private sector by providing complimentary products. A summary of other comparable DFIs mandates and objectives are as follows:


    1. DFC (USA): DFC’s investments focus on impactful global development, advancing US foreign policy, and generating returns for the American taxpayer. Their similarities with BII’s strategic outlook include their approach to climate and inclusion and their development impact framework. USDFC have launched a series of new climate-focused commitments, including net zero emissions in its portfolio and was also a founding member – with BII - of the 2X gender lens investing Initiative that has collectively committed to catalysing an additional $15 billion of investment in women by 2025. Alongside BII they are a signatory of the Operating Principles for Impact Management (OPIM). The main difference between BII and DFC’s strategic outlook is that DFC is part of the US government, advancing US foreign policy and American commercial competitiveness are key parts of their strategy rather than solely focussing on development mandate.


    1. FinDev (Canada): Launched in January 2018, FinDev Canada uses a range of financial instruments to achieve global development objectives. FinDev’s development impact goals are aligned with BII’s, with a focus on women’s economic empowerment, market development and climate mitigation and adaptation. They are also a signatory of OPIM. FinDev apply a gender lens to their transactions, meaning they steer capital towards transactions with high impact on women’s economic empowerment and/or support client companies to become more gender inclusive. They also have 2X Canada, a CAD 75.9 million blended finance facility which is expected to support up to 57,000 jobs, of which 50% will be for women, and to reach up to 5,000 women entrepreneurs. FinDev launched their Climate Change Strategy in 2021 where they set out aims of continuing to prioritise climate investments that are gender responsive and increase climate-related investments to at least 35% of their portfolio by 2025. The main strategic difference with BII is their geographic focus, with 47.6% of their portfolio in Latin America and the Caribbean, whilst BII continues to focus on the poorest markets they also operate at a much smaller scale – making 18 new investments in 2021 


65. EDFI is the association of 15 European bilateral development finance institutions, its mission is to foster EDFI members’ cooperation with EU institutions and other DFIs.


      1. Proparco (France) is the private sector financing arm of Agence Française de Développement Group (AFD Group). The AFD Group’s 2018-22 strategy focuses on inclusion and sustainability and so aligns with BII’s. AFD Group committed to making Proparco the first ‘100% Paris Agreement’ development finance institution – aiming to systematically ensure that all funded projects are compliant with the Paris Agreement. Proparco were a founding member of the 2X Initiative. Proparco’s main strategic differences with BII are their broader geographical remit, covering higher income areas such as Latin America & Caribbean and Europe – and the amount of debt they provide (69% of portfolio).


      1. DEG (Germany) - The German DFI was established in 1962, it is a Limited Liability Company and is wholly owned by KfW (which itself is owned by the German Federal government (80%) and Lander (20%)). Their mission is to finance and advise private enterprises operating in developing countries – as well as contributing to creating more skilled jobs and all the SDGs. Since 2022, DEG has focused its work even more keenly on climate change, aiming to make their portfolio climate neutral. Like BII, DEG is committed to promoting greater participation of women in developing countries, they do this by being a founding member of the 2X Challenge. Their main difference with BII is their significant amount of geographical focus in Latin America & Caribbean (29% of portfolio) and the amount of debt (56% of portfolio)


      1. Norfund (Norway), founded in 1997, is a development finance institution wholly owned on behalf of the Norwegian government by the Ministry of Foreign Affairs. Their strategic outlook has a focus on creating impact in countries where capital is scarce and other investors are reluctant to invest. Like BII, sustainability is a key aspect of their strategy, clean energy and green infrastructure are two of their four priority investment areas. Norfund also are committed to inclusive investment and have partnered with BII on 2X qualified projects H1 Capital and Greenlight Planet, furthermore their strategy sets out an ambition to increase capital available to unbanked individuals. Geographically, the main differences are that 13% of their portfolio is in Latin America & Caribbean and they invest significantly less of their portfolio in South Asia (10%).


      1. FMO (The Netherlands) is the Dutch development finance company, its majority shareholder is the Dutch Government (51%), while the remaining shares (49%) are held by private sector entities such as Dutch banks, employers’ associations and trade unions. Climate action, economic growth and reducing inequalities are the 3 key topics in their 2030 strategy. They aim to maximise their impact by committing €10 billion towards SDG 10, through investments with a gender lens (they, like all EDFIs, are part of the 2X initiative) and in more LDCs; and committing €10 billion to SDG 13, aiming for a net zero portfolio by 2050. FMO’s key strategic differences with BII are their significantly more diverse geographical focus and a smaller share of their portfolio being equity and quasi equity investments (36%). 

4.    How effective are the governance structure and internal oversight mechanisms of BII (e.g., oversight over direct investments, fund investments, BII controlled companies)?


4.1 Governance


66. HM Government, through the FCDO, is the sole shareholder and funder of BII. BII is a Public Limited Company and is authorised and regulated by the Financial Conduct Authority (FCA).

67. In line with good practice guidance from the Cabinet Office and HM Treasury for the management of a public financial corporation, the FCDO operates an ‘arm’s length’ governance model for BII. Within this model the FCDO sets the strategic direction and key operating parameters for BII’s business but delegates individual investment and operational decisions to BII.

68. FCDO’s strategic intentions for BII across a given five-year period are reflected in the the Investment Policy, Policy on Responsible Investing, and Technical Strategy.

69. To oversee the implementation of the Investment Policy, Policy on Responsible Investing and Technical Strategy BII is governed by an independent Board of Directors answerable to the FCDO as sole shareholder. The FCDO directly appoints the Chair of the Board and two of BII’s Non-Executive Directors (NEDs). The Chair and NEDs on BII’s board are appointed for their relevant skills in, and knowledge of, international development, finance, and the markets in which BII invests.

70. BII’s Board of Directors is accountable for all business and operational decisions. The absence of FCDO from individual investment decision-making, ensures BII is viewed as a credible, long-term, impact focussed, investor to its commercial counterparties and the wider market.

71. BII’s governance arrangements were reviewed by the National Audit Office (NAO) as part of their study of DFID investments through BII in 2016 and were judged to be “thorough”. 

72. BII’s arm’s length relationship has a number of advantages for the FCDO:

    1. Robust lines of accountability from the Board to the Shareholder. The FCDO appoints the Chair, two Non-Executive Directors, and sets BII’s strategic objectives and key operating parameters. The Board is then held to account for delivering this strategy. To have an FCDO official on the Board would confuse and blur these lines of accountability.
    2. An effective and empowered Board. As sole shareholder, we take the view that having an FCDO official on the Board, responsible for providing the Department’s considered view on every decision, would undermine and potentially destabilise the Board and reduce its effectiveness.
    3. Independence from political pressure. The independence of BII’s Board sends an important signal to the market. It enables BII to reassure potential investee companies and co-investors that BII conducts its activities in a commercial manner – without political interference - and will be a reliable and predictable, long term business partner, attributes its private sector partners value.
    4. Commercial reputation. BII’s independence enables it to operate on a commercial basis which provides clear demonstration to the market that helps to increase the impact that BII can have on wider markets and the perceptions and behaviours of private investors.


73. As a development finance institution, BII has a distinctive purpose to demonstrate, to private investors that investment in fragile and low-income markets can be profitable and can achieve development impact. This complex mandate requires that the Board holds a range of experiences and skills, including an understanding of the markets that BII operates in within Africa and Asia, delivering and measuring development impact, development economics, risk management, private equity and investment, and thematic expertise such as climate change


4.2 BII’s Oversight of investments


74. In line with the expected standards and processes of a regulated investment company, BII operates a robust control framework for oversight of the various aspects of the performance of its investments. This includes the development impact and commercial performance aspects of each investment alongside the management of risks associated with investment activity such as Environmental, Social and Governance (ESG), financial crime, bribery and corruption, sanctions, and other risks.

75. At a corporate level, BII’s Board, Executive Committee, and Investment Committee, regularly review the performance and risk profile of the investment portfolio. These reviews synthesise a wide range of performance information and data gathered by BII’s investment teams who are responsible for the day-to-day management of individual investments. Each investment team is led by an investment professional with support from specialists in Development Impact, Environmental, Social and Governance (ESG), Gender, Climate, as well as Legal. 

76. BII’s requirements for the oversight, risk management, and reporting it expects from individual investees is set out in its policies and standard operating procedures which are reflected in its legal agreements with each investee. For example, BII’s Policy on Responsible Investing sets out the environmental, social and business integrity requirements (ESG) that its investees are expected to meet after an investment is made by BII. To ensure it remains at the forefront of international best practice, BII seeks to align its own standards with those of its peers. These include multilateral development banks such as the International Finance Corporation (IFC) and European Development Finance Institutions.

77. While BII’s core requirements are mandated in its legal agreements with each investee an important element of BII’s development impact is supporting investees to improve their responsible business practices over time. As such, specialist teams within BII – such as the Environmental & Social team – actively work with investees to design, implement and operate best practice ESG management and reporting systems.

78. The individual arrangements and mechanisms BII adopt to implement its polices and requirements can vary depending on the structure of the investment. For example, where BII invests capital directly in a company, BII places requirements on the investee in relation to its own operations, using its direct relationship to observe and influence ESG and BI practices. Where BII is investing through an intermediary – such as a financial institution or investment fund – that will in turn make investments, BII’s supports the development of capacity, processes and governance systems that enable its requirements to flow through the intermediary’s own investment processes and investment management activity.

79. As an example of BII’s approach, and for BII to assess whether an investment fund’s E&S management system is being implemented effectively and to provide necessary support and advice, BII will routinely review a fund’s first three E&S due diligences. It also reviews all due diligences of high E&S risk companies prior to the fund’s final Investment Committee decision.

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?


80. The FCDO determines the amount of additional funding to BII based on strategic ambition, needs assessment and liquidity position. Additional capitalisation to BII was needed throughout the last strategy period to deliver on HMG’s higher ambition and the additional scope, such as expanding the higher risk Catalyst portfolio, and entering the most challenging markets in Africa and South Asia. 

81. Following the reforms to CDC in 2010, that saw a shift in focus from a fund of fund model to direct equity and debt model, and a narrower geographical focus to South Asia and Africa to support a deepening of market expertise, the past two BII strategy cycles (2012-16, 2017-21) saw BII a phased scale up to the size of equivalent DFIs. BII scaled its operations from less than 50 staff in 2012, with no country representation, to 577 staff at the end of 2022 with 81 staff members based in countries in which it invests. It also saw increases in annual investments, from circa $270m in 2012 to $2bn in 2021. This scaling was backed by funding from the FCDO, including £3.4bn provided between 2017 and 2022 and enabled it to build market expertise and reputation. As a consequence, BII become central to HMGs toolkit in delivering economic development and having the capacity to do this at scale.

82. It also enabled BII to develop and scale its higher-risk Catalyst portfolio that seeks to catalyse transformational development impact in riskier, more fragile geographies and in innovative or nascent sectors that entail a higher risk than BII’s Growth portfolio.

83. The funding FCDO provide to BII for its Growth and Catalyst portfolios is returnable capital (non-fiscal) and differs to the grant financing profile of many of the FCDO’s other programmes. Non-fiscal spend (“financial transactions”) does not contribute towards public sector net borrowing. HMT therefore provides the FCDO with a ring fenced non-fiscal ODA amount for a given spending review period.

84. BII is one of a number of programmes within the FCDO portfolio that utilises non-fiscal spend and BII has the capacity and track record to utilise large scale non-fiscal spend.

85. Delivery of the 2022-26 strategy will require further capitalisation if BII is to deliver its ambitious objectives, including expansion into the Indo-Pacific and Caribbean and increasing investments in innovative, higher risk markets and sectors, including climate. Any future funding to BII will be provided through the established approval process and meet FCDO transparency requirements.

86. Since 2017, annual ODA funding to BII has averaged around 4% of total UK ODA. As part of the 2022 Spending Review, we will be providing on average 3% of FCDO's forecasted ODA budget. 

87. BII’s own operational budget is determined by its operational cost framework, agreed with FCDO. In setting BII’s budget and operating expenses, BII’s Board ensures it has the appropriate capabilities to deliver its mandate whilst ensuring efficiency and value for money for the UK taxpayer.  Before any investment is funded or activity undertaken, BII ensures it is adequately resourced with people, systems, processes and controls. BII manages its costs to an agreed operating ratio

88. An annual budget is prepared by BII to ensure that it is operating within its financial capacity, that the board and management understand the costs incurred in the business and to ensure that resources are directed towards meeting the company’s objectives.  The budget is reviewed, challenged and, ultimately, approved by the BII plc Board.

89. Regular monitoring against operating costs ratio is provided to FCDO through quarterly reporting. Annual costs are published in BII’s Annual Accounts.

6.    How are the decisions of BII’s management scrutinised? What transparency is there over BII’s performance monitoring and reporting?


6.1 Accountability


90. The FCDO holds regular governance meetings with BII’s Board and Executive Management. It also has an agreed reporting framework on key metrics and performance indicators.


91. The FCDO holds formal annual meetings with the Chairs of the thematic sub-committees of BII’s Board, including the Risk Committee, Development Committee, and People and Renumeration Committee, as well holding a private governance annual meeting between the FCDO PUS and BII Chair.


92. The FCDO also holds an Annual Shareholder Meeting attended by the FCDO PUS BII’s NEDs and Executive Management as well as four formal quarterly shareholder meetings chaired by the Director-General Indo-Pacific with BII’s Chair and Executive Management including CEO, CFO, and General Counsel, along with other relevant BII Directors and staff as may be required.

93. These meetings are used to review and discuss BII’s performance, for example:

      1. Progress against the financial and development impact targets set within BII’s Investment Policy;
      2. BII investment activity, including commitment pace, disbursements, and realisations, and the status of the investment pipeline;
      3. BII’s cash position relative to commitments, Net Asset Value (NAV) of its portfolio, and future commitment levels;
      4. Budget and recruitment;
      5. Development impact;
      6. Risk and risk management;
      7. ESG and Business Integrity (BI) issues.

94. Oversight is also provided by the Public Accounts Committee, National Audit Office, Independent Commission for Aid Impact, as well as stakeholder and civil society engagement. BII is also subject to the Freedom of Information Act.

95. Stakeholders. BII encourages and actively promotes engagement with stakeholders to support transparency. Since the start of 2021 there have been three Parliamentary hearings, dozens of meetings with Parliamentarians, 43 written questions and 800 online attendees at the most recent BII stakeholder day where its Annual Review is published and discussed.

96. BII has also been extensively reviewed by ICAI. BII took part in three ICAI reviews in the last strategy period with over 700 pages of evidence made available. The third review, which concluded in 2021 was very positive and cited BII’s engagement as best practice. ICAI referred to ‘extensive dialogue’ and a ‘learning journey’ that ‘shows the strong results accrued’. ICAI endorsed BII’s approach and said BII’s consideration of development impact in investment decisions was “often impressive”. ICAI quotes included:

  1. “The consideration of impact is driving active management of investments to a much greater extent than before the ICAI review. BII is now a more reflective organisation with the systems, processes and culture in place to learn from good quality M&E about how to promote development impact through its investments.’
  2. “We conclude that the extent of consideration of development impact in investment decisions is now much greater and that aspects of this consideration are often impressive.”
  3. “Our review of BII’s documents and interviews with BII staff undertaken for this second follow-up review provided strong evidence that BII is more systematically monitoring its investments and actively managing them to promote development impact.”
  4. “There have been clear improvements to BII’s approach to achieving development impact since… the original ICAI review in 2018’ & ‘ICAI is content with the trajectory of progress and will not return to this review in next year’s follow-up exercise.”
  5. “We found there had been significant progress with the implementation of the Gender Value Creation Strategy and good progress on its Climate Change strategy, as these had been prioritised within the organisation.”

6.2 Transparency

97. Over the previous strategy period BII developed a strong and transparent track record, which it continues to build on. It was the first DFI to sign up to the International Aid Transparency Initiative (IATI) and has since published numerous sets of data. BII was one of the first DFIs to make its investment information publicly available. It has an online searchable database on its website, allowing users to access information on every investment and fund in BII’s portfolio.

98. BII works with other DFIs and civil society to improve its processes and reviews its transparency policy every two years to reflect best practice.

7.    What criteria does BII use to determine investment decisions and how are financial returns balanced with achieving impact?


99. BII operates with a mandate of making investments that achieve development impact while maintaining profitability. This is reflected in the Investment Policy[21], as agreed with the FCDO, that sees each investment made by BII scored against its impact framework.

100.         This mandate is captured by two performance indicators, as defined in its Investment Policy that the FCDO holds BII to account on: (i) an impact score, and (ii) financial performance measure.


101.         Every investment BII make will have an associated Impact Score which is based on the expected development impact of the investment (ex-ante). The score for each investment will also be updated over the lifetime of the investment at regular intervals, based on the actual impact performance (ex-post). The scoring considers:


      1. Productive score: reflects how efficiently an investment addresses the biggest developmental needs, and the extent to which the investment is expected to have positive spill overs onto the productivity of other firms. A productive score will also consider the potential to catalyse markets to improve market structures and the behaviours of other market actors by increasing competition, pioneering new business models that can lead to replication by others, reinforcing demonstration,
      2. Sustainable score: reflects to what extent the investment will contribute to the transition to net zero and climate-resilient economies. The score depends on whether and to what extent the investment qualifies as climate finance. If qualifying, an investment is scored according to its contribution to climate mitigation, adaptation and resilience. If not, it is scored on greenhouse gas (GHG) emissions and contribution to climate adaptation and resilience.
      3. Inclusive score: captures who is directly benefitting from the investment, using either known characteristics of workers and customers (initial income, gender and ethnicity), or a country score.


102.         BII’s financial hurdle represents the long term expected financial performance of the organisation. It has been agreed with the FCDO and it is specifically set at a level that seeks to provide BII with a risk appetite that supports investing in the hardest markets, with the riskiest products, to achieve the greatest development impact.

103.         The financial hurdle is lower than returns expected by private, purely profit-seeking investors to reflect BII’s development impact focus. It exists to ensure BII remains financially sustainable, allowing it to recycle capital that can be reinvested and go on to have further development impact, many times over.

104.         This financial return agreement has been instrumental in enabling BII to develop its higher-risk Catalyst portfolio that seeks even greater development impact in more nascent markets, including in more fragile geographies.

105.         To manage financial risk exposure at a portfolio level the BII board has a sub- committee on risk that oversees the frameworks BII management implement to manage their risk exposures. This ensures a diversified portfolio that limits concentration of financial risk in any particular country or sector.

106.         BII’s investment process considers a range of criteria and factors that impact investment decisions, including:

      1. The strategic rationale and development impact thesis
      2. The additionality rationale for BII finance where BII is providing finance, or other value add that the private sector would not do
      3. Whether the potential investment partner or investee’s values aligns with BII
      4. The commercial thesis of the investee and ability to execute its business plan
      5. ESG and business integrity risks

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.)?


107.         BII operates at arm’s length to the FCDO ensuring its individual investment decisions are not influenced by geopolitical priorities but are grounded in commercial and development impact objectives. However, as part of BII’s due diligence process external macro-economic, market and political context are considered and BII works closely with HMG on political and reputational risks.


108.         BII and DFIs have a role to act counter-cyclically when markets are experiencing economic stress resulting in private capital flight and exposing business and sectors to risk. The Covid crisis saw BII develop a Covid response strategy that had three areas of focus: ‘preserve’, ‘strengthen’ and ‘rebuild’. The first pillar focused on supporting BII’s partners to safeguard impact and weather the crisis, this was done by sharing expertise and guidance and by providing technical assistance following the approval of the ‘COVID-19 Business Response Facility’ and the ‘COVID-19 Emergency Technical Assistance Facility’. The Strengthen pillar entailed scaling up their response to the economic and health challenges of the crisis, this was done by working with local banks to provide the working capital that businesses need and exploring investments such as MedAccess that can scale up access to healthcare and basic services. The Rebuild pillar aimed for BII to become a long-term partner to the countries where they invest and helping them to recover and prosper through the pandemic and beyond. BII is now actively monitoring its role in supporting the impacts of the Ukraine crisis – for example, its support with the food security crisis in its markets.


109.         BII manages these risks via oversight of the board which has a number of subcommittees, including a risk committee, audit and finance, and development impact committee. These oversee the implementation of the strategy and provide the structures and frameworks to provide oversight to manage portfolio risks, including financial risk. External events and crises will therefore be analysed in terms of the effects they’ll have on BII’s risk threshold. 


110.         In addition to this BII and the FCDO work jointly through quarterly shareholder meetings to report such risks, in particular financial and reputational risks, to ensure these are transparently managed in order to safeguard BII’s development impact. 

9.    What due diligence does BII undertake prior to making investment decisions and how does this compare with best practice?


111.         BII’s process for conducting commercial due diligence on potential investees is similar to that conducted by commercial investors while going significantly further in some areas – especially as regard the expected development impact and ESG aspects of an investment proposal.


112.         As part of its investment process and ahead of making any investment decision, BII will conduct detailed due diligence across several areas of the potential investee’s activities including:

      1. Commercial performance
      2. Environmental and Social
      3. Business Integrity (inc. money laundering, bribery and corruption, sanctions)


113.         BII has in place standard operating procedures which help ensure its due diligence process is consistent across each investment. In line with the Operating Principles for Impact Management (The Principles) – of which BII is a signatory – BII ensures that development impact considerations are integrated throughout the investment lifecycle, including at the pre-investment stages.


114.         BII’s alignment to The Principles are independently verified on an annual basis. The most recent verification by BlueMark found BII had ‘Advanced’ alignment with seven of the principles and ‘High’ for the remaining one principle placing BII as a leader in the field.


115.         Embedding impact considerations is achieved in practice thorough the design of template investment documents, policies and in the composition of the investment team (which includes embedded development impact specialists) and the Investment Committee (which includes external members to provide independent challenge and who are chosen for their relevant expertise). These aspects of BII’s investment process ensure a robust assessment of expected development impact at the pre-investment stage and facilitates a full discussion of development impact during the formal decision points where investment is considered.


116.         Following the adoption of the BII’s Climate Change Strategy all investments are now assessed by BII’s climate team for their degree of alignment with the Paris Agreement – the decision of which is included in Investment Committee papers. Where the investment is considered as potentially qualifying as International Climate Finance a further assessment is made by BII’s climate team to check eligibility.   


117.         The 2X Challenge criteria and BII’s gender and inclusion focus has resulted in enhanced monitoring and reporting on gender related criteria to ensure this gender lens is effectively applied to BII’s portfolio. Screening and due diligence processes for new transactions now include:

      1. gender-related due diligence questions to identify investments presenting a high opportunity for gender-related value additionality.
      2. for these high priority deals, an analysis of company-level gender-disaggregated data and qualitative information reflected in impact dashboards and used as a baseline for impact performance monitoring;
      3. and a 2X assessment undertaken for new deals,.

10.           What current investments does BII hold?


118.         The past two strategy cycles have seen BII scale its operations, narrow its geographic focus and develop sector strategies along its three core strategic groups Infrastructure, Financial Services and SMART (services, manufacturing, agriculture, real estate and construction, and technology/telecoms). The consolidation of BII’s geographic mandate, since 2012 with a deepening focus on the most fragile countries in Africa and South Asia has seen it dramatically increase its portfolio in these regions.


      1. Sector breakdown of BII portfolio as at 31 Dec 2021(all the investments that BII currently holds)


Financial Services



(Services, manufacturing, agriculture, real estate, telecoms)







    1. Sector breakdown of BII’s 2021 investment commitments (the investment decisions that BII made in 2021)



Financial services 








    1. Regional breakdown of BII portfolio




South Asia

Rest of World










    1. Regional breakdown of BII’s 2021 investment commitments









119.         Under their climate change strategy and fossil fuel policy, BII committed to no new investment in fossil fuels, with very limited exceptions which are consistent with the UK Government’s fossil fuel policy. BII now have almost 3x more renewable projects than fossil fuels. The value of BII’s renewable energy portfolio now surpasses the value of its fossil fuel portfolio by 20 per cent, the reverse of [the previous year] where the renewable energy portfolio was 5% smaller than the fossil fuel energy portfolio. This trend is expected to continue as a result of ongoing implementation of BII’s climate change strategy and fossil fuel policy – including their commitment to Paris Alignment and a net zero portfolio by 2050 and making at least 30% of investments in climate finance. BII is committed to actively supporting the companies they are already invested in to adapt and transform to reduce their carbon footprints in line with this net zero portfolio commitment.



11.           How effectively does BII manage funds following its initial investment?


120.         Central to BII’s mandate is a firm commitment to responsible investing. BII’s Policy on Responsible Investing (‘the Policy’) sets out the environmental, social and business integrity requirements (ESG) that BII Investees are expected to meet after an investment is made. 


121.         Regular and close engagement between BII and its investees is an important part of ensuring its funds are being used appropriately and that its policies are being implemented. BII routinely carries out site visits before an investment is made and during the lifetime of the investment. Where the investment is made into an investment fund BII will visit the fund and their investee companies. These visits enable BII to understand the progress and on-the-ground challenges encountered by portfolio companies and fund managers when implementing good ESG practices. They also enable BII to better support and advise investees on how to tackle any challenges they face.


122.         Since 2020 BII has also further enhanced its internal portfolio review processes to support more active management of investments to maximise development impact. These processes include in-depth development impact analysis structured along the impact framework, presenting aggregate data available on impact performance at a portfolio level.


123.         Since 2006, BII has also provided a free-to-use toolkit aimed at private equity fund managers and financial institutions in emerging markets. The Toolkit aims to be both a practical building block for the development of a customised ESG management system, and an easy-to-use reference guide for assessing and managing ESG risks, impacts and opportunities. The current version, released in January 2019, is the fourth iteration of BII’s ESG Toolkit for Fund Managers.


124.         Similarly, BII aims to move gender-smart investing from being viewed as a niche approach to the mainstream. Therefore, BII have created a free-to-use, accessible toolkit aimed at investors and companies working in its markets. The Toolkit brings together resources, guidance, and templates that focus on gender-smart investing, gender diversity and inclusion, and gender considerations across a range of sectors. It provides practical guidance and steps to take, drawing from BII’s own experience and best practice across the industry.


125.         BII also continued to enhance its ESG and Gender Toolkits for investees and fund managers centred on responsible investing; impact investing; as well as assessing and managing negative risks to impact – whether pertaining to workforce health and safety; vulnerable employees, customers, and suppliers’ protection and safeguarding; and environmental risks. BII also developed Business Integrity toolkits supporting strengthened Governance at investee level.


126.         In 2020 BII further enhanced its successful General Partner (GP) and investee training workshops through the addition of an impact management module. These workshops are well attended, for example a workshop held in Lagos in January 2020, saw over 160 people attend, representing 16 fund managers, and 35 portfolio companies. Other DFIs also attended to gain exposure to BII’s ESG and Impact best practice.


127.         An important element of BII’s engagement with their investments – both during due-diligence and in managing its investment – is site visits. Where the investment is made into a fund BII will visit the fund and their investee companies. These visits enable BII to understand the progress and on-the-ground challenges encountered by portfolio companies and fund managers when implementing good ESG practices. They also enable BII to better support and advise fund managers on how to tackle any challenges they face


128.         To enable BII to assess whether the fund’s E&S management system is being implemented effectively and to provide necessary support and advice, BII reviews the fund’s first three E&S due diligences. It also reviews all due diligences of high E&S risk companies prior to the fund’s final Investment Committee decision.

12.           How does BII evaluate the impact of its investments?


129.         An enhanced and systematic focus on evaluations and learning was launched in late 2017 to provide accountability to the taxpayer and deepen FCDO and BII’s knowledge of the best ways to support long-term positive change through development finance. As set out in the “FCDO-CDC Evaluation and Learning Programme 2017-23”, the strands of this work cover:

    1. Insight studies – contracted, managed and published by BII. These investee studies and evidence reviews provide insights into the actual or likely development impact of BII’s investments, generating useful learnings about innovative business models and strategies. This has led to the publication of 18 publicly available studies via BII’s Insight page.
    2. FCDO commissioned sector studies. These large multi-year sector studies began in September 2019 and cover BII’s three priority sectors: Financial Services, Infrastructure; and ‘SMART Industries’ (services, manufacturing, agriculture, real estate and technology). They focus on BII’s broader development impact above and beyond the impacts being tracked for individual investments. Under the first phase of the studies, and as of March 2022, reviews of BII’s Financial Services and Infrastructure and climate portfolios have been completed and are publicly available. The SMART evaluation is currently underway. The second phase of these studies involves conducting in-depth case studies of BII investees. Across 2023, four investment case studies are expected to be published under the Financial Services evaluation – with three related to MSMEs and one to trade finance. Three in-depth case studies are expected to be published under the Infrastructure evaluation, with a further two studies planned over the 23/24 fiscal year. Final evaluation reports will be published on the completion of the evaluations’ second phases. FCDO commissioned 10-year longitudinal evaluation on mobilisation of private sector capital. The aims of this study include understanding the drivers of direct mobilisation, demonstration effects and investor sentiment in key markets and sectors; how the activities that BII undertakes affect these different forms of mobilisation and market sentiment, including the relative importance of these activities; and how BII could increase its ability to mobilise private investment, and what FCDO and other development actors could do to support this. Currently in its sixth-year case studies on sequential fund investments, renewable energy investments are due to be published in 2023 with two further case studies in progress in 2023.
    3. Impact Research Challenge Fund – FCDO and BII have partnered with the Centre for Economic Policy Research (CEPR) to run a financing window in the Private Enterprise Development in Low-Income Countries (PEDL) programme to support new research that fills critical evidence gaps related to the work of BII and the impacts of private sector investment in developing countries.
    4. Investee impact monitoring - Impact Monitoring Plans and corresponding templates and guidance were developed in 2020 to support proactive investment monitoring and management at individual deal level. These outputs follow the same structure as impact dashboards, thereby enabling BII to track key indicators and actions throughout the life of the investment.


130.         BII continuously monitor progress against their own 2022-26 strategy target of 25% of new annual commitments as 2X qualified. BII provide FCDO with quarterly updates on performance against this target at the Quarterly Shareholder Meeting and publish an annual public update in their Annual Review.



131.         In their 2022-26 strategy, BII outlined that they will not support activities that undermine public facilities. To that end, they will prioritise any investments in the health sector in the following areas: the manufacturing of medicine, vaccines, devices and equipment; pharmacy and retail logistics; treatment and delivery; early-stage funding for research and development and health-technology companies; and, market-shaping interventions combining the public and private sector. Any investment made in a hospital will ensure the hospital supports a significant proportion of users who are on government payment schemes or on low incomes  



132.         BII’s strategic focus in the education sector focuses on three areas: (1) Education for employment, investing in suppliers of core and supplementary education for young people and adults; (2) EdTech, companies that provide tech solutions that enable learning both in and out of school; and (3) sector development, investing in companies that provide teacher training and professional development, curriculum content and assessments, and education financing.


[1] COVID-19 to Add as Many as 150 Million Extreme Poor by 2021 (worldbank.org)

[2] COVID-19 (Coronavirus) Drives Sub-Saharan Africa Toward First Recession in 25 Years (worldbank.org)

[3] British International Investment, Productive, Sustainable and Inclusive Investment: 2022-26 Technical Strategy, https://assets.cdcgroup.com/wp-content/uploads/2022/01/06170001/2022-2026-Technical-Strategy-2.pdf

[4] RIETI - Developing economy debt after the pandemic

[5] https://www.imf.org/external/pubs/ft/ar/2022/in-focus/debt-dynamics/#:~:text=About%2060%20percent%20of%20low,be%20critical%20for%20these%20countrie.

[6] https://www.statista.com/statistics/330695/number-of-smartphone-users-worldwide/

[7] OECD ‘Global outlook on financing for sustainable development 2021’. Paris: OECD


[8] Attridge, S. and Gouett, M. (2021) Development finance institutions: the need for bold

action to invest better. Report. London: ODI (www.odi.org/en/publications/development-financeinstitutions-the-need-for-bold-action-to-invest-better )

[9] Development finance: Filling Today’s Funding Gap, George Ingram and Robert A. Mosbacher, Brookings Institution, 2018.

[10] The Economics of Development Finance’, CDC Group Impact Study, 2021.

[11] https://www.bii.co.uk/en/impact-gamechangers/the-simple-payment-solution-powering-millions-of-homes/

[12] https://www.bii.co.uk/en/impact-gamechangers/how-technology-is-powering-farmers-productivity/

[13] The Growth Report: Strategies for Sustained Growth and Inclusive Development, World Bank, 2008.

[14] Investment and Poverty Reduction, British International Investment Insight Study, March 2021.

[15] Ibid

[16] Hull, Katy (2009). Understanding the Relationship between Economic Growth, Employment and. Poverty Reduction. In Economic Growth, Employment and Poverty Reduction. Organisation for Economic Co-operation and Development

[17] i) The relationship between IPP capacity and employment, ii) The relationship between port capacity and GDP iii) The relationship between quantity of road infrastructure and GDP, iv) The relationship between quantity of road infrastructure and employment v) The relationship between broadband penetration and productivity, vi) The relationship between mobile broadband penetration and GDP

[18] ‘Investing to Transform Lives: Five Years On’, British International Investment, 2022.

[19] ‘Foundations for the Future’, British International Investment Annual Review 2021.

[20] https://data.worldbank.org/indicator/EG.ELC.ACCS.ZS?locations=MZ

[21] Policy report (bii.co.uk)