Innovation in Governance of Development Finance: Causes, Consequences and the Role of Law

Overview:

Supply of, and demand for, innovation in the techniques and governance of development finance have both been growing rapidly. As recently as the 1990s, foreign capital flowed to low-income countries mainly through a limited set of channels. Most finance involving public actors moved through channels controlled by a relatively small number of international financial institutions and agencies sponsored by longstanding OECD member governments. Reasonably simple financial instruments such as grants, concessional loans and subsidized political risk insurance preponderated.

This picture has changed radically. Some of the recent innovations involve new types of organizations and other new actors, such as social enterprises, public-private partnerships, and public agencies in non-OECD countries or OECD newer members. Other innovations involve new financial instruments, such as social bonds of the kind pioneered by the International Finance Facility, peer-to-peer micro-lending of the kind pioneered by Kiva, index-based weather insurance, infrastructure financing from entities in China with an approach to conditionality distinct from that of the MDBs, or the World Bank’s new program-for-results instrument.

Whether particular innovations or suites of innovations represent effective means of promoting development — and the meaning of effectiveness for this purpose — are the subject of burgeoning research. Behind this lie some fundamental lines of inquiry which this workshop aims to address: What are the conditions under which effective innovations in development finance emerge and flourish? What roles do law and public policy play in creating those conditions? What have been the pathologies or pitfalls of such innovations and how can these be avoided? To what extent are theories of innovation and diffusion that have been formulated in other contexts – as well as associated concepts such as network effects, path dependency, open innovation or user innovation – useful in understanding innovation in development finance?

This workshop examined the causes and consequences of innovation in development finance and the implications for law and public policy, including roles of law in innovation, and the adequacy and significance of innovation in development finance law and governance.

This event was supported by the Volkswagen Foundation, the Institute for International Law and Justice, and New York University School of Law.