Recommendation 18

HM Government · verbatim extract Acknowledged

BII is a leader amongst Development Finance Institutions (DFI) in targeting investment at the world’s poorest places. Over the last five years (2017–21) 50% of BII’s total disbursements went to poorer and more difficult countries and states in Africa and South Asia. 3 FCDO has agreed an Investment Policy for BII for the period 2022–26 that is more geographically focused on the poorest countries of the world than any other equivalent DFI. When making investment decisions, BII has an industry-leading impact framework. One element of this framework is the Productive, Sustainable, and Inclusive (PSI) Score—which provides a comparable numerical weighting to each investment allowing BII to construct a portfolio of investments in line with the priorities set in the 5-year strategy. Recommendation 15 pertains to the Inclusion element of this score. Many of the investments that are needed to transform economies and eradicate poverty, such as those in the electricity grid, digital infrastructure, credit for SMEs etc., have a systemic impact. The inclusion score for such investments is already calculated using the depth of poverty so that locations of investment with higher levels of extreme poverty (at $2.15 2017 PPP) receive higher scores. The percentage of stakeholders living beneath $5.50 2011 PPP is used to calculate the Inclusion score of those investments where impact is felt directly by workers or customers. Extreme ($2.15) poverty is mostly found in rural areas and to a lesser extent in the precarious fringes of urban economies. Some opportunities exist to invest in businesses that directly reach those populations, and BII can also supply credit to farmers and microenterprises via specialist financial institutions. But BII’s primary focus is on investing in larger and more productive formal sector firms that mostly hire workers with some labour market experience and serve customers with some disposable income. These are the businesses that provide better jobs, pay taxes, and whose growth is vital for poverty reduction. The more inclusive of these formal sector businesses do directly employ and serve people living in poverty, but predominately those between $2.15 (2017 PPP) and $5.50 (2011 PPP). People living beneath $5.50 are poor. A poverty line of $13 is often associated with a permanent escape from poverty. The appropriate benchmark for direct reach to low-income populations was considered and tested carefully when the Impact Score was designed, and the percentage beneath $5.50 (2011 PPP) was chosen. That benchmark produces a good distribution of Inclusion scores across investments, which is necessary for effective prioritisation. Adding the extreme poverty line to the methodology was considered and rejected at the time because it did not materially change the scores.