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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is managing director of the International Finance Corporation
The global economy faces a profound imbalance. Capital continues to pool in a handful of markets, while vast reserves of human potential in developing countries remain underutilised.
Over the next decade, 1.2bn young people — mostly in emerging and developing economies — will enter the workforce. Yet current economic structures will generate only 420mn new jobs. This isn’t simply a development challenge. It’s a structural risk to the global economy. Unemployment and underemployment of this scale strain political systems, fuel migration and expose the fragility of global supply chains.
The size of the challenge demands a fundamental evolution in how the World Bank and other multilateral institutions connect private capital with development aims. When institutional investors managing $400tn allocate only a fraction to markets where 85 per cent of humanity lives, the result is not just missed opportunity — it’s systemic risk. That’s why we’re transforming our approach from keeping loans on our balance sheet to packaging them into securities that meet institutional investors’ requirements while creating the jobs and growth that foster stability.
Recently, the International Finance Corporation, the World Bank Group’s private sector arm, issued a $510mn emerging market securitisation, the first of its kind from a multilateral development bank. The issuance demonstrates that development finance can and must serve dual purposes; channelling private capital to where it’s needed most while offering investors the returns and portfolio diversification they seek. It’s more than a financial transaction, it’s proof of concept.
For some, there’s scepticism. Previous attempts to mobilise private capital for development have often fallen short, whether due to currency crises, governance challenges or misaligned incentives between development goals and investment returns. Critics rightfully point to the persistent gap between rhetoric and capital flows, noting that decades of initiatives have barely moved the needle on institutional investment in emerging markets.
So we have taken proven capital market structures and applied them to development finance. We’ve pooled portions of high-quality IFC-originated loans from 57 borrowers across our portfolio, spanning manufacturing, infrastructure, technology and healthcare sectors, and structured them into investment-grade securities that achieved AAA ratings on the senior tranche. Goldman Sachs arranged the transaction, and the London Stock Exchange listed it, making emerging market investment as straightforward as buying corporate bonds. Through an originate-to-distribute model, we’re moving from holding loans on our books to packaging existing portfolios into securities.
By demonstrating that loans from a multilateral development bank can be pooled, structured and rated using standard capital market practices, we’re creating a template that others can follow. Each subsequent issuance will build market familiarity, deepen liquidity and reduce the cost of capital for developing country borrowers while also giving them access to entirely new channels of funding.
But perhaps the most transformative shift is this: every dollar we securitise can be reinvested again and again. By recycling capital rather than locking it, we increase our development impact.
Securitisation addresses only one piece of the puzzle, though. There are five critical obstacles to emerging market investment: regulatory uncertainty, political risk, currency volatility, lack of first-loss protection and insufficient junior equity. The World Bank now bundles political risk insurance with financing, aiming to triple our coverage to $20bn by 2030. We’re developing local currency financing mechanisms that enable borrowers to access capital in their own currencies, protecting them from exchange rate volatility that has historically undermined emerging market investments.
The choice facing the financial world is clear: continue concentrating capital in saturated markets while demographic pressures build elsewhere or seek to reshape how investment flows globally.
This market will only achieve the scale needed when institutional investors recognise that emerging markets now offer what every portfolio needs: genuine diversification and access to the growth that will define the next decade. The question isn’t whether capital will eventually flow to emerging markets, but whether we’ll move fast enough to turn today’s demographic challenge into tomorrow’s shared prosperity.
