The European Investment Bank in sub-Saharan Africa: Managing credit risk

Due to global funding gaps, public development banks (PDBs) increasingly envisage to scale up their activities by leveraging the private sector. At the same time, PDBs face restrictions on their ability to expand their financing activities. One of these constraints is the way in which these banks are evaluated by the major credit rating agencies. Thus, while governments choose to leverage existing funds, rather than make available additional budget, PDBs aim to bear as little risk as possible. In line with this trend, the European Union recently reformed its financial architecture for development, rearranging its financial instruments, in favour of national development agencies and private actors. The European Investment Bank (EIB) was able to expand its geographical reach to sub-Saharan Africa, however has to move into this area while balancing its internal and external risk appetite. The EIB must thus strike a balance between expansion on the one hand, and maintaining its triple A-credit rating on the other. This raises the question: How eager is the EIB to use the new financial instruments which are to be used for leveraging the private sector? Especially regarding its increased role in EU-Africa development financing, considering the additional risks of moving into fragile areas. In this paper, we explore the role of varieties in different funding structures - especially the varying dependence of the EIB and NDBs on capital markets - on their preferences with regard to EFSD+, by analyzing the balance sheets of the European development banks, official documents, available statistics and through expert interviews. Our central hypothesis is that the more development banks borrow on capital markets, and are therefore dependent on their loan, the more guarantees they want for loans to least developed countries.