Given the likelihood that food and fuel inflation is set to rise globally and that overseas development assistance is on a downward trend, donors and impact investors ask an important question: “Can the world continue to tolerate that development finance institutions (DFIs) prioritise preserving their capital when the urgency around calculate risk taking and longer term patient financing has never been more urgent?”.   

The question also formed the basis for the discussion hosted by DG INTPA on 13 January in Brussels. The EU Global Gateway is a large fund for sustainable and inclusive development which aims to boost smart, clean and secure connections in the digital, energy and transport sectors, and to strengthen health, education and research systems across the world through a ‘Team Europe approach', that bring together the EU, its Member States and their financial and development institutions to mobilise the private sector co-financing investments (European Commission, 2026).

As European DFIs look to raise more capital from the Gateway, DG INPTA and European donor agencies would like DFIs to use this money to create investment opportunities that would also bring in domestic investors in fragile countries. Domestic investors are particularly important as they have a deep understanding of their home countries and will take legal, political and currency risks that foreign investors will shy away from. Unless domestic investors have ‘skin in the game’ in the development of their own economies, sustainable development will remain constrained in both impact and ambition. The question debated on 13 January was thus how DFIs were paving the way for pipelines of investable projects that could be co-finance by DFIs, EU enterprises and, moreover, domestic players.  

To get to the bottom of this question, the Shamba Centre is conducting an evidence-review on how DFIs are using the following strategies to capitalise investments in food and agriculture in fragile countries:    

• Guarantees,

• Results-based finance and platforms, and

• Joint venture and limited liability companies

The difficult dual mandate of the DFIs  

DFIs are increasingly expected to invest in creating and shaping markets that stimulate economic transformation, rather than only investing in fixing market failures. They are being called upon to: 

• Provide longer term and lower cost financing,

• Expand conditional and outcome-based financing,

• Invest more in low-income and fragile economies, and

• Offer better terms for projects and companies that bring additional environmental, social and development impact.

However, these types of investments can be difficult for DFIs to undertake because their governance structures actively discourage it. For example: 

• Governance rules prioritize capital preservation, positive ROE, AAA/AA credit ratings, and low non-performing loan (NPL) ratios. 

• Key performance indicators often mirror those of commercial banks. Innovation, market creation, climate resilience, and skilled job creation may not be included. 

• A strong reliance on AAA/AA ratings forces DFIs to maintain high capital adequacy ratios and avoid higher-risk portfolios. 

• Many DFIs lack a clear mandate to align with donors, resulting in insufficient concessionally for high-risk, market-creating investments. 

Focus of the DFI consultation January to June 2026

The Shamba Centre is conducting this consultation to explore how DFIs are now beginning to address this challenge and invest in high-risk geographies and higher risk sectors such as agriculture and food. Examples include: 

• Operating dedicated facilities or windows with dedicated pools of funding and KPIs focused on development outcomes, lower returns and higher tolerance for losses. 

• Increasing participation in funds, limited liability companies and joint ventures with mandates aligned to the SDGs.

• Sharing risks across multiple DFIs, enabling each to remain within its preferred risk threshold. 

• Encouraging shareholder governments to provide dedicated sovereign capital pools for higher-risk projects.  

• Increasing the participation of domestic investors including institutional investors, sovereign wealth funds, state-owned companies, commercial banks and public development banks.  

We also aim to discuss emerging reforms in DFI governance, such as: 

• Board-level approval for higher portfolio risk in low-income countries, backed by mandates that allow higher acceptable failure rates. 

• KPIs aligned more with donor objectives such improving the productivity of SMEs, climate adaptation, nature (deforestation and biodiversity), and technology. 

• Working with shareholder governments to establish unfunded guarantees that protect DFI balance sheets and allow greater risk-taking without undermining capital adequacy. 

• Operating through country platforms, where beneficiary governments, donors, DFIs, and private enterprises collaborate on joint investment objectives, for example, expanding cold chain logistics. This approach distributes risk among multiple actors and reduces the risk of over-politicization. Under this model: 

• bilateral DFIs and public development banks develop a pipeline of near-bankable projects, 

• private enterprises explore investment-ready opportunities, 

• MDBs support beneficiary governments with and baseline infrastructure, and 

• donors provide technical assistance. 

The Shamba Centre is honoured to be working with the European Association of DFIs (EDFI) and the EDFI and EDFI Management Company in reaching out to European DFIs on best practice and future opportunities. The findings from the evidence review and the conversations will be summarised in a policy brief which will be published later this year.