Mission-oriented development banks: the case of KfW and BNDES

Authored by Professor Mariana Mazzucato and Laurie Macfarlane

Download working paper

UCL Institute for Innovation and Public Purpose (IIPP) Working Paper Series: IIPP WP 2023-13

Forthcoming in 2024 in the Oxford Handbook on Greening of Economic Development, co-edited by John A. Mathews and Arkebe Oqubay Oxford University Press.

Authors:

• Mariana Mazzucato | Director and Professor in the Economics of Innovation and Public Value | University College London, Institute for Innovation and Public Purpose (IIPP)
• Laurie Macfarlane | Co-director | Future Economy Scotland & Policy Fellow | University College London, Institute for Innovation and Public Purpose (IIPP)

Reference:

Mazzucato, M. and Macfarlane, L. (2023). Mission-oriented development banks: the case of KfW and BNDES. UCL Institute for Innovation and Public Purpose, Working Paper Series (IIPP WP 2023-13). Available at: https://www.ucl.ac.uk/bartlett/public-purpose/wp2023-13

Abstract:

There is an urgent need for channelling long-term finance towards addressing major social, environmental, and economic challenges. The paper argues that state investment banks (SIBs) can play a crucial role in mobilizing the needed capital, and that they can most effectively do so when structured and governed to play a ‘mission-oriented’ role. We provide an empirical account of two SIBs that have played an active mission-oriented role in their respective economies: Germany’s KfW and Brazil’s BNDES. We reflect on these empirical findings and identify key institutional characteristics that have enabled them to play this role, including challenge-led mandates, use of progressive conditionalities, stable sources of finance, diverse in-house expertise, and robust governance structures. The paper concludes with a discussion on how mission-oriented SIBs can be complemented by wider reforms to the global financial system.