As noted in the summary of tracked adaptation finance flows, 67% of all tracked adaptation finance to Africa in the Landscape came from DFIs in 2017 and 2018 (information on climate funds is separated given the uniquely adaptation-targeted nature of that finance). DFIs play a critical role in financing adaptation in Africa as their mandates align closely with adaptation outcomes. DFIs are increasingly mainstreaming climate adaptation across projects through climate risk and vulnerability assessments. They have a low capacity to raise funds from international capital markets as sometimes they have a high ratio of shareholders’ equity to debt and can not borrow from markets.
DFIs can assist country governments in building adaptive capacity for mainstreaming adaptation and can support private investments by testing innovative financial instruments. DFIs are also uniquely placed to support adaptation investments in the private sector which can create positive externalities for social and economic development. For example, they can support private sector adaptation projects by bridging the knowledge gaps through tools such as feasibility studies, business risk assessments, technical assistance, and market studies. They can provide concessional finance to MSMEs engaged in adaptation activities in cases where returns are low. Intermediated financing to local banks which on lend to MSMEs to undertake resilient practices can be another way to finance adaptation with low transaction costs.
Although not a development finance institution, as an international financial institution the International Monetary Fund is working towards integrating climate change into its economic surveillance programs through its “Article IV” mandate and consultations. As noted in the Introduction, a proposed SDR allocation of $650 billion globally will also potentially increase resources for a green and resilient recovery in Africa.