New recommendations urge G20 policymakers and global standard-setters to better reflect the risk-reducing role of MDBs and DFIs, with near-term action possible under the UK's 2027 G20 Presidency
WASHINGTON, D.C., The Institute of International Finance (IIF) today published a new policy paper in partnership with the EMDE Investor Taskforce calling for targeted adjustments and clarifications to the prudential treatment of investments in emerging markets and developing economies (EMDEs) to help mobilize private capital while maintaining robust standards for safety and soundness.
The paper, Addressing Prudential Barriers to Private Capital Mobilization for Emerging Markets and Developing Economies, identifies areas where parts of the existing regulatory framework may not fully reflect the risk characteristics of certain transactions supported by multilateral development banks (MDBs) and development finance institutions (DFIs). These transactions typically benefit from guarantees, preferred creditor status, co-financing structures, political risk protection, and other forms of risk mitigation, yet bank and insurance capital rules may not always fully recognize those protections.
As a result, prudential requirements designed for standalone commercial exposures can make MDB- and DFI-supported investments more capital-intensive than their underlying risk may warrant, limiting the ability of banks and insurers to participate in transactions that can help finance infrastructure and development across EMDEs.
The paper proposes a sequenced set of reforms focused on improving risk sensitivity, consistency and transparency rather than reducing regulatory safeguards:
The recommendations build on the IIF's longstanding work on making prudential regulation more risk-sensitive and evidence-based, including its earlier analysis of barriers to bank participation in development finance and its 2026 work on mobilizing insurer capital and underwriting capacity.
Tim Adams, President and CEO of the Institute of International Finance, said: "Capital rules should reflect actual risk, not rely on proxies that can miss the effect of well-structured MDB and DFI support. This is not a call to weaken prudential standards; it is a call to make them more risk-sensitive. Better data, clearer rules, and targeted calibration can help crowd in substantially more private capital for emerging markets while preserving financial stability. With the UK taking the G20 Presidency in 2027, there is a real opportunity to turn that evidence into action."
A central focus of the paper is what policymakers can do now. It identifies a series of practical near-term measures that could be advanced during the UK's 2027 G20 Presidency without reopening or fundamentally changing existing prudential frameworks. These include improved data collection and analysis on the impact of MDB and DFI involvement on transaction risk and performance; clearer treatment of political risk insurance; greater consistency in public-sector entity classifications; and further analysis of the performance of MDB- and DFI-supported infrastructure finance.
Those near-term steps could in turn establish the evidence base for longer-term reforms by the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors, national regulators, and other standard-setting bodies.
The paper also emphasizes that prudential reform alone will not be sufficient. Greater private capital mobilization will require parallel progress on domestic policy reforms, stronger project pipelines, investable products, standardized documentation, and market infrastructure in EMDEs.
Hendrik du Toit, founder and Chief Executive, Ninety One said, "Emerging markets and developing economies will be central to global growth in the decades ahead, but the scale of private investment flowing to these markets remains far below what is needed. The opportunity is there, as is the capital. What needs to change is the framework that connects the two. The Taskforce's recommendations make an important case for ensuring that prudential frameworks better reflect the actual risk of investments supported by multilateral development banks and development finance institutions. If regulation better reflects the underlying risk, significantly more private capital can be mobilised while maintaining strong prudential standards. This is not simply an emerging-markets issue. Greater investment in these economies can support growth, resilience and prosperity globally. Removing unnecessary barriers to private capital is therefore in the interests of both emerging and advanced economies."
The IIF leads the EMDE Investor Taskforce's Regulation and Policy workstream, one of five workstreams examining practical barriers to institutional investment in EMDEs and identifying solutions to increase the mobilization of private capital.