Risky Business

Intermediary lending and development finance

The past ten years have seen a surge in a new type of development lending, in which development finance institutions (DFIs) provide funding through financial intermediaries (FIs) rather than directly. FI lending now comprises over half of all International Finance Corporation (IFC) lending, and the European Investment Bank (EIB) has doubled this type of lending to 40% in the last decade.

This new development model has important implications for the problem of land-grabbing, which Oxfam is highlighting as part of its GROW campaign.

Financial intermediaries such as private equity funds and hedge funds are increasingly involved in large-scale land acquisitions in developing countries, and many of them are partly funded by DFIs. What’s particularly worrying about this trend is that this is a form of ‘hands-off’ lending by DFIs: while their environmental and social standards may apply to the FI they are funding, those protections do not extend to the projects supported by the FI. This means less transparency and accountability, as well as fewer protections for communities that rely on access to the land and resources for their livelihoods. This can result in disastrous impacts for local communities affected by investment in land.

Key recommendations

  • Investments involving the wholesale transfer of land away from affected communities should be excluded, unless there is demonstrable application of social and environmental standards, including Free Prior and Informed Consent, proper compensation, and full transparency.
  • Information disclosure should be increased for FI sub-projects, especially those affecting communities’ access to land and other natural resources.
  • DFIs should apply performance standards to all high- and moderate-risk sub-projects, and to all projects that adversely impact the land and natural resources on which people living in poverty rely for their livelihoods.