Governance is important for both private and public sector organisations. For development finance organisations (such as IFC, CDC, Africa Development Bank and Asia Development Bank) which are publicly funded and invest in developing countries it is critical. A key part of governance is measuring the development impact that they have through setting goals and measuring the impact of their investments.
The objectives of development finance organisations are often framed at a very broad level of abstraction:
“[IFC’s] goals are to end extreme poverty by 2030 and boost shared prosperity in every developing country.”
“CDC’s mission is to support the building of businesses throughout Africa and South Asia, to create jobs and make a lasting difference to people’s lives in some of the world’s poorest places.”
One of the governance challenges faced by these organisations is understanding how their day to day activities, and in particular their investments, contribute towards the achievement of these objectives. This is in part governed by the setting of goals and measurement of the impact of each investment.
By way of example, the IFC governs its development impact by:
- setting goals (IFC Development Goals);
- using its Development Outcome Tracking System (DOTS) to measure the development results of investment (and advisory) services, as shown below:
By contrast, CDC (focused on the growth of businesses and the creation of jobs) places appears to place more emphasis on assessing its ability to make development impact at the time of making each investment decision:
“We remain interested in achieving and measuring positive impact across a broader dimension, but the job creation focus ensures we direct capital thoughtfully and prioritise our limited resources behind a mission that inspires us. We believe job creation is essential in both Africa and South Asia where two thirds of the those of working age are today without formal jobs and where demographic growth will greatly exacerbate this challenge over the next decade. At an individual level, employment has a transformative effect on the life of an individual and his/her family and dependents.
We have therefore created an ex ante tool that turns theory into practice and ensures we invest our capital towards our objective of creating jobs, especially in the more challenging places. This new methodology, designed with the help of our shareholder and academics and economists, is embedded in our investment processes and we use it to assess every investment opportunity at Investment Committee for its potential to create the impact that we are seeking.”
Whilst in reality the approaches adopted by the various organisations are not so different, it would appear that the three stage governance process adopted by the IFC across the life-cycle of investments provides greater opportunity for scrutiny, reflection and learning at all stages of the investment process than that adopted by CDC.