Development finance institutions have to strike a careful balance between profitability and developmental outcomes. Gaia evaluated the work of Norwegian Investment Fund for Developing Countries (Norfund).
The Norwegian government considers private sector development a priority and a vital instrument for poverty reduction. The object of Norfund is to establish viable, profitable businesses in developing countries – businesses that would otherwise not be initiated because of the high risk involved. Norfund does this by providing equity capital and other risk capital, and by furnishing loans.
“Development Finance Institutions like Norfund occupy an interesting, intermediary space between public aid and private investments with a twofold objective of generating financial returns and facilitating development in developing countries. The official international development agenda is currently under transformation from the Millennium Development Goals to post-2015 Sustainable Development Goals. Development Finance Institutions are at the core of intense discussions about the roles and responsibilities of public and private sectors in development,” says Gaia’s evaluation director Mikko Halonen.
Based on Gaia’s evaluation, Norfund has been rather successful in fulfilling its mandate. Overall, Norfund’s work is well aligned with Norwegian development policy and follows partner country priorities. In doing so, Norfund has had to deal with a number of trade-offs, in many cases not just between financial and developmental outcomes, but also among different developmental achievements.It has addressed these trade-offs between its goals and targets in a manner supported and accepted by most Norwegian stakeholders.
For example in 2008–2013, the investments of Norfund and its partners contributed annually to employment benefits in the range of 148,000 and 313,000 people, to tax contributions to host governments in the range of 24 billion Norwegian kroner in total, and to renewable energy production in the range of 30 terawatt hours.
However, the evaluation identifies a number of reasons why Norfund should further develop the monitoring and reporting of its development outcomes and contribution to poverty reduction. The evaluation also reviews the role of Overseas Financial Centers in Norfund’s operations, including measures taken by the fund to address challenges like potential tax evasion, money laundering or other unethical conduct.
“In our rapidly changing world traditional development aid is being increasingly questioned. Large private resource flows enter many developing countries while simultaneously even larger volumes of resources leave them. Private sector is the powerhouse of development. We can learn valuable lessons from Development Finance Institutions when seeking better and more effective ways to harness the private sector for more equitable and sustainable development, says Pasi Rinne from Gaia.
The evaluation was conducted by Gaia Consulting and commissioned by the Norwegian Agency for Development Co-Operation.
Norfund
At the end of 2013, Norfund’s portfolio amounted to 9.6 billion Norwegian kroner and consisted of 118 investments managed by a staff of 54 Norfund employees. Norfund’s investments have concentrated on renewable energy, financial institutions and agriculture. In addition, its SME funds constitute a separate investment area to support the development of local small and medium-sized enterprises across a range of sectors.
More information:
- Evaluation of the Norwegian Investment Fund for Developing Countries (Norfund)
- Mikko Halonen, Leading Consultant, Gaia Consulting, tel. +358 40 700 2190, email: firstname.lastname@gaia.fi
- Pasi Rinne, Chairman of the Board, Gaia Consulting, tel. + 358 400 464 127, email: firstname.lastname@gaia.fi
