When the world adopted the SDGs, policymakers knew that aid alone would never meet the financing needs. They embraced the “billions to trillions” vision, believing that an abundance of commercially viable SDG-related investments was ready and waiting for trillions in profitable private investment—if only development finance institutions (DFIs) and others could clear away the obstacles that stand between the investments and private investors. Reality looks different. Finding bankable projects, especially in low-income countries, is hard for commercial investors and hard for DFIs, essentially for the same reasons. The DFI view of risk, tolerance for risk, risk management approaches, and goals for risk-adjusted returns are not greatly different from those of commercial institutions.
The result is a critical gap in the architecture for development finance. Grantmakers fund non-financially sustain- able but high-development-impact activities. And commercial impact investors, including DFIs, seek market re- turns along with impact. We need a new public-private actor in between, one that has a very different risk tolerance and financial objective, and an emphasis first and foremost on development impact. We propose the Stretch Fund to partner with DFIs in ways that stretch their range of investments, spectrum of clients, scope of investible markets, and scale and mobilization of finance.