The Future of CDC
International Development Committee inquiry

by The Corner House and Jubilee Debt

first published 23 November 2010

During November-December 2010, the International Development Committee (appointed by the House of Commons to examine the expenditure, administration and policy of the Department for International Development (DfID) and its associated public bodies) held an inquiry into CDC, the UK’s development finance institution that is wholly owned by DfID.

CDC was created after the Second World War as the Colonial (later Commonwealth) Development Corporation to invest in developing countries. Today, it does not make direct investments, but instead invests with private sector fund managers with the aim of “maximising sustainable business growth and mobilising private finance”. The UK government, however, has no involvement in CDC’s day-to-day decision making, which is carried out by the CDC Board of executive and non-executive directors based in London.

The International Development Committee acknowledged that “CDC has faced increasing criticism amidst concerns that it has become disengaged from one of its core objectives: sustainable economic development”.

The Corner House and Jubilee Debt made a joint submission to this inquiry on the effectiveness of CDC compared with other similar institutions; the reforms proposed by the Secretary of State for International Development; and the extent to which the proposed reforms will be sufficient to refocus CDC's efforts, especially with respect to poverty reduction.

The submission focuses on detailed comparisons between CDC and the DFIs of Germany, Sweden, The Netherlands, European Union and the World Bank’s International Finance Corporation (IFC). It notes that CDC alone offers just one way of mobilising capital for the private sector: private equity funds of funds (many of which are based in the UK or other Northern countries) which are wholly unsuited to delivering positive development outcomes (particularly poverty alleviation).

The two groups welcome the announced reforms of CDC, particularly the move towards a broader range of financing channels, but regret that the Department will continue to adopt a “hands off” approach to CDC and set only the broad framework for its operations. The submission concludes:

“If CDC is to prioritise poverty reduction, as it should, then its approach to the choice, development, monitoring and mentoring of projects will need to be radically rethought. In particular, mechanisms that allow for direct funding, with ongoing oversight and monitoring will be critical, as will the development of mechanisms that allow poorer people to participate in the design and implementation of programmes, for their own benefit.”

The Committee heard oral evidence on 7 December 2010 and 14 December 2010 and published the written evidence submitted to it on 11 January 2011.