Question Period Note: Canada's Innovative Finance Programs: The International Assistance Innovation Program (IAIP) and Sovereign Loans Program (SLP)

On 10/08/20, the Globe & Mail published an article titled “Ottawa's $1.5-billion foreign aid initiative has spent only $120,000 so far” criticizing Canada's Innovative Finance Programs.

• The IAIP and SLP are new and innovative programs for Global Affairs Canada that represent a significant departure from traditional grants and contributions.
• The IAIP and SLP provide the department with an expanded toolkit of development financing. It has taken time to develop and test these tools, build internal capacity, and refine the governance and processes needed to responsibly administer them.
• The COVID-19 pandemic reduced departmental capacity, significantly limiting options to undertake due diligence on potential initiatives, and shook the global economic system, demanding programmatic recalibrations, particularly given the repayable nature of the funding.
• The Innovative Finance Programs remain a priority for Global Affairs Canada, as outlined in the Prime Minister's mandate letter for the Minister of International Development.
• The Innovative Finance Programs continue to adjust their strategies based on an evolving global context as well as lessons learned, actively building a pipeline of potential initiatives.

The IAIP offers Canada an extensive suite of blended finance tools, including concessional debt, equity, and guarantee instruments for poverty alleviation and economic development.

Developing this new line of business has taken longer than anticipated. Following the Budget 2018 announcement, establish these new financial instruments required new policy, programming, and legislative authorities in addition to hiring new staff.

Following the IAIP's launch in summer 2019, the program opened a Concept Note intake webpage, as well as pursued due diligence on several investments including the PM-announced African Guarantee Fund initiative to support women entrepreneurs.

Early operations elucidated internal challenges in managing these new financing tools. The resolution of these challenges is being actively pursued on all levels.

The COVID-19 pandemic forced significant strategic re-orientation that further slowed down implementation - both because of operational capacity limitations, and because of the pandemic's economic disruptions.

How do we compare to other donors?
While seeing the value of debt and equity, few donors have sought to operationalize them within their own development agencies. Many have instead given these financing tools to their DFIs, or IFIs, often adopting more limited innovative finance capabilities in-house. Examples:
In the first three-year pilot phase of SIDA's guarantee program, they were only able to approve two guarantees. The European Commission's Guarantee program was unable to finalize any guarantee agreements in the first 2 years of operations.
Despite absorbing the authorities, staff, and capacity of the Overseas Private Investment Corporation (OPIC), which had existed for nearly 50 years as a leading DFI, the US's new Development Finance Corporation (DFC) officially launched 2 years after it was announced in January 2020.

How big are other blended finance programs?
IAIP/SLP - approx. 20 employees. $1.59B over 5 years
UNCDF - approx. 200 employees, $70M/year ($20M of which is blended finance)
IFC - approx. 3,400 employees, $20B/year
FinDev - approx. 35 employees + EDC support, $300M total capitalization

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