The Next Five Years of the DFC: Ten Recommendations to Revamp the Agency

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In an effort to shore up U.S. economic engagement overseas in emerging economies and boost national security and foreign policy priorities in critical markets, both chambers of the U.S. Congress in October 2018 came together to pass a bipartisan piece of legislation—the Better Utilization of Investment Leading to Development (BUILD) Act—to create a revamped development finance institution: the U.S. International Development Finance Corporation (DFC). The BUILD Act was passed to breathe new life into the U.S. government’s efforts to engage overseas economically.

However, the DFC has been viewed by many in Washington as a silver bullet to counteract China’s Belt and Road Initiative (BRI) and Global Development Initiative through major infrastructure investments—in other words, a way to showcase U.S. commitment to development in strategic areas and push private sector investment into risky countries. This is particularly the hope for critical infrastructure, most notably on digital connectivity in the Indo-Pacific and Africa, where high-risk vendors from China dominate the information and communications technology (ICT) sector. The DFC is not, and should not be, the silver bullet it is often mistakenly purported to be. However, Congress has the opportunity in the upcoming reauthorization of the DFC to address the agency’s limitations, strengthen its tools and capabilities, and highlight other areas of the U.S. government that can complement the DFC’s engagement.

Since its inception, and despite many successes, the DFC has not quite met policymakers’ exceedingly high—and sometimes varied—expectations for what it should be able to do. Some questions remain, including regarding the DFC’s ability to mobilize private sector capital, its capacity to balance its development and foreign policy mandates, and whether it has the adequate tools, authorities, and mindset to fill the financing gap in overseas investment. This paper addresses some of the wins of the agency, along with its challenges, and proposes a path forward. It also provides a short case study on how to unleash DFC tools to mobilize more transactions in the digital infrastructure space. The paper offers 10 recommendations to ensure both that the DFC is meeting its full potential and that the U.S. government can identify other agencies and areas that can complement the DFC’s suite of tools to maximize impact.

The DFC is not, and should not be, the silver bullet it is often mistakenly purported to be.

The CSIS Economics Program and Project for Prosperity and Development held two private roundtables in July 2023 that explored these issues. They included U.S. government officials; former heads of the Overseas Private Investment Corporation (OPIC) and the DFC; and representatives from the business community. Interviews with U.S. government officials that deployed financing, and companies that received financing from the U.S. government, were conducted in August and September 2023. In addition to the project team’s research, this paper incorporates these experts’ perspectives garnered from the roundtables and interviews.

Wins for the DFC

In its short tenure, the DFC has notched several accomplishments related to funding highly development projects, increasing its staff, contributing to major initiatives, and working with partners agencies from around the globe.

The DFC is making good on its mandates to invest in low-income countries (LICs) and lower-middle-income countries (LMICs); data shows that more than 50 percent of the agency’s financial commitments in FY 2022 were in LMICs, which is almost double the FY 2021 levels. Furthermore, the DFC approved 27 new projects of more than $3 billion in the third quarter of FY 2023. These DFC transactions contributed to energy security and climate goals, global health and health security, food security and agriculture, and financial inclusion across the globe. According to its annual report, the agency also increased its staff by close to 15 percent in FY 2022 and improved its processes for business development and project approval.

The DFC has also been an active player in contributing to health and infrastructure initiatives, most notably financing transactions to boost Covid-19 vaccine supplies from India and Senegal, providing $300 million in financing for critical infrastructure projects to support the Indo-Pacific Economic Framework, and supporting infrastructure and renewable energy projects in India announced at the 2023 G20 summit.

The DFC has also strengthened its partnerships with Australia, Japan, South Korea, and partner countries in the G7. This has led to cofinancing on digital infrastructure in the Pacific Islands and on Covid-19 and health-related transactions globally.

Current Challenges

Despite these wins, the DFC’s inability to match expectations is due to a mix of issues both within and outside of its control. A global pandemic, limitations imposed through the BUILD Act, the size and leadership of the agency, and misperceptions and misconceptions about the DFC’s role have all played into varying levels of disappointment from the public and private sectors. Below is a list of external and internal factors that have impacted the DFC:

External Factors

  • Covid-19: The DFC launched in December 2019 and was hit by the Covid-19 pandemic and subsequent global shutdowns just three months later. This prevented mission-critical business trips, the evaluation of projects, conventional due diligence, and in-person business development. Additionally, clients overseas had to contend with their own challenges to business operations and contracting Covid-19, thus slowing down the pace of projects proceeding to the financial commitment stage.
  • Politics: Since the passage of the BUILD Act, the remaining tenure of OPIC and the advent of the DFC has involved five leaders in as many years, as well as a presidential transition. This has complicated the establishment and implementation of the DFC and its new tools and made it difficult to establish a solid vision of what it is going to do to advance U.S. global development support, foreign policy, and national security.
  • Equity Scoring Gaps in the BUILD Act: The ability to make equity investments is an important one for the DFC to be able to support local companies that cannot take on, or do not want to take on, debt. The DFC can make equity investments as a minority investor in any entity or investment fund. Equity investments are limited to 30 percent of any project and are capped at an overall limit of 35 percent of the DFC’s total investment exposure, up to $21 billion. What the BUILD Act did not specify was how investments should be accounted for (or “scored,” in bureaucrat parlance), which has created significant challenges in terms of budgeting. Budgetary treatment of the DFC’s equity investments is currently on a dollar-for-dollar basis, meaning every dollar of equity investment must be matched by an appropriated dollar for Congress. This way of scoring does not reflect the expected positive returns from the investments, and as an October 2021 letter from Congress to National Security Advisor Jake Sullivan stated, “nor does it align with Congressional intent in passing the BUILD Act. Under the current scoring arrangement, the DFC will never come close to having an equity portfolio that will be able to make the sort of impact that Congress envisioned.” The current scoring approach will not unleash the full possibility of this new tool.

Internal Factors

  • Unresolved Staffing Issues: The DFC has a few hundred staff and is working to scale up, as noted above, including hiring new project lawyers, financial specialists, and policy experts. The DFC has deployed a handful of officers overseas, and it has contractors on the ground to undertake business development and identify viable commercial opportunities. Staff shortages undermine the ability for the DFC to undertake the expected pipeline-building work and distribute financing for multi-million-dollar projects. As outlined in a previous CSIS report on the DFC, the International Finance Corporation (IFC) had a staff of close to 4,000 people in 2012 managing a portfolio of $45.8 billion—that is, the IFC had 17 times more staff than OPIC yet managed a portfolio that was only three times as large. In 2019, the DFC had a total of 270 staff plus 40 employees attached to the Development Credit Authority( DCA), an office pulled from USAID into DFC through the BUILD Act. Though the DFC has staffed up since its establishment, it is nowhere near a suitable number to handle a $60 billion investment cap.
  • Confusing Investment Criteria: Any project considered by the DFC must meet certain criteria, including being in an eligible country (income classification); complying with environmental, social, and governance (ESG) standards; aligning with foreign policy and national security goals; having a solid management track record; and being “additional” (i.e., requiring financing from outside commercial lenders). Under current law, the DFC prioritizes countries that the World Bank classifies as LICs or LMICs. The methodology and classification of countries are not entirely clear. Section 1412(c)(2) of the BUILD Act stipulates that a national security waiver is required to invest in upper-middle-income countries (UMICs) if (A) “the President certifies to the appropriate congressional committees that such support furthers the national economic or foreign policy interests of the United States; and (B) such support is designed to produce significant developmental outcomes or provide developmental benefits to the poorest population of that country.” A September 2022 Inspector General Audit Report found that the State Department works with the DFC on a certification process that would allow the DFC to work in UMICs, but the process is slow and unwieldy, preventing investments that would support the agency’s development, foreign policy, and national security mandates.
  • Unnecessary Bureaucracy: The DFC is required to provide a Congressional Notification (CN) for every investment over $10 million. From January 2019 to March 2023, the DFC financially committed to 505 projects. Of those projects, about 200 were below the $10 million threshold. Thirty-two were technical assistance projects, and a few dozen were insurance products to implementing agencies to provide technical assistance to projects. In addition to technical assistance, many of these projects supported micro-, small, and medium-sized enterprise (MSME) financing, agriculture, business expansion, and low-income housing through loans and loan portfolio guarantees. This means that at least two-thirds of the DFC’s portfolio has required a CN, which is turning more into an approval process than a notification process. As the DFC is pushes to and is finding more large projects, the CN process will become increasingly burdensome and slow the financial commitment approval process.
  • Risk-Averse Culture: OPIC and the DFC are particularly risk adverse. This stems from OPIC’s original mission of being a financially self-sustaining agency that would return money to the Treasury Department each year. The only way to achieve this is to make safe investments in low-risk markets, an anathema to the current mandate and policy dream of investing in LICs and LMICs and in infrastructure, which are inherently high-risk activities. One could view the $30 billion appropriation from Congress that doubled the DFC’s investment cap as a signal to the agency that Congress is willing to tolerate risk, but congressional intent is unclear and the operating history of OPIC and the DFC does not support this.
  • Misaligned Timeframes: There is intense pressure to announce deals, but the project lifecycle pace does not fit with presidential administrations, congressional terms, or summits and high-level meetings. This is the case with larger infrastructure projects, particularly in risky markets, where it can take years from concept to contract. Financing for small and medium-sized enterprises (SMEs) and small-scale projects in developing countries can have big impacts and can get pushed through the approval process faster, but this does not support the bipartisan push for DFC projects to counter China’s BRI (or its relatively new Global Development Initiative), which finances mega infrastructure projects such as digital connectivity and transportation infrastructure including ports, railways, highways, and airports. The misunderstanding of the project cycle only increases the tension among policymakers in the Biden administration and Congress and the agencies that finance such projects.
  • Lack of Speed: One issue that both policymakers and businesses highlight as a barrier for doing business with the DFC is the speed with which a project is approved and financing is disbursed. Depending on a myriad of factors, a DFC project can take nine months to two years to be approved and may take longer to disburse financing. Though data is lacking, China presumably takes less time, as it has an advantage as a one-stop shop for government approvals, consortiums, feasibility studies and due diligence, and financing. There is plenty of evidence that shows that the BRI has failed in many aspects, including by increasing debt distress in 60 percent of BRI recipient countries, enacting projects that have had low-quality standards and soon after required repairs, or by touting projects that remain unfinished. However, it remains unmatched in being able to approve, disburse, and deploy resources to support the infrastructure projects needed by many developing countries.

Case Study:

Unleashing the DFC and U.S. Government Tools to Promote Digital Connectivity and Telecommunications Infrastructure Overseas

ICT is a priority for DFC investment. This sector is also a national security and foreign policy priority for Congress and the current presidential administration, driven by concerns of proliferation of Chinese technology around the globe. ICT investments can culminate in wireless networks, Open Radio Access Network (ORAN) technology, surveillance cameras, subsea cables, mobile handsets, and satellites, as well as systems upgrades from 2G and 3G to 5G and beyond.

The United States and its partners are behind in investing in ICT in LICs and LMICs. As U.S. companies have focused primarily on larger, wealthier markets, Chinese providers have invested in lower-income and rural markets: Afghanistan, Iraq, Kenya, Mexico, Russia, and throughout Southeast Asia and the Pacific Islands. This presents two problems: (1) a lack of opportunities for U.S. and partner and allied countries overseas, and (2) the expansion of high-risk vendor technology in strategic regions, several of which likely plan to use the techno-authoritarian tools China is selling, and which are locations where DFC is mandated to invest.

The DFC has made headway in the past 20 years on ICT investments, including undertaking a network acquisition in the Pacific Islands, providing renewable energy to power cell phone towers in Nigeria and the Central African Republic, building cell phone infrastructure in Myanmar, and developing ICT infrastructure in Jordan to provide a critical interconnection point for an internet cable system connecting Europe and Asia. In 2018, the DFC also provided $100 million in financing to Africell to expand affordable mobile voice and data services in The Gambia, Sierra Leone, Uganda, and the Democratic Republic of the Congo and upgrade its network equipment to accommodate increased traffic. This is a good start, but it has resulted in an average of one ICT investment each year. Strategic regions need more.

There are limitations that will have to be addressed in order for the DFC to better provide financing, including a zero-sum policy on high-risk vendors, bankability, and risk aversion. Section 889 of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 includes language that states that heads of executive agencies, including the DFC, cannot provide loans or grants that include equipment from high-risk vendors. This could include old network equipment, such as 2G and 3G technology or networks that have maintenance or upgrade clauses attached to the original project. Section 889 does have waiver authority that would allow the DFC to proceed with the loan if it can map out the network and provide a plan for ripping and replacing high-risk vendor technology. This presents an issue for the DFC on multiple fronts. Many networks in LICs and LMICs in the Indo-Pacific and Africa have Chinese technology in the system, such as from Huawei or ZTE. Companies may not want to rip and replace an entire network, adding to their debt load. In the United States, for example, 181 carriers submitted initial reimbursement application requests totaling approximately $5.6 billion to the Federal Communications Commission to help defray rip-and-replace costs, while Congress has only set aside $1.9 billion. While costs for rip-and-replace efforts overseas are likely to be lower, this will be yet another obstacle to convincing companies to take on DFC financing. Should the United States attempt to push out high-risk vendors through investments? Or should it take a zero-sum approach and only support projects where networks are free of such equipment or support the rip-and- replace plan?

U.S. companies are also struggling to reach bankability criteria, particularly in the ORAN space. In the ICT space, there are few overseas providers that can offer alternatives to China, such as Nokia and Ericsson, although Huawei is certainly the most affordable. Most countries and their operators would prefer to build whole systems rather than components of systems, which is what ORAN does. While it is difficult in developed countries with legacy systems, there are more opportunities in LICs and LMICs. There is already limited commercial adoption of ORAN, which currently includes the Dish Network and Japan’s Rakuten. ORAN provides spaces for other operators and telecom companies to provide safer components to a network and start to pull apart high-risk vendor lock ins. In interviews with private sector companies engaged in this sector, companies said that they were unable to get funding for ORAN projects due to bankability issues. Despite a national security argument, the commercial viability argument wins the day. Funding through the CHIPS Act is working to address this issue, but financing agencies such as the DFC and U.S. Export-Import Bank must find ways to take greater risks on ICT technology.

Finally, beyond bankability concerns, risk calculations limit investments in ICT overseas. There are genuine safety and regulatory concerns that would not be much assuaged by the tools that the DFC can provide, such as political risk insurance. Companies, especially those located in the United States, would be hard pressed to identify and engage in projects in LICs and LMICs so far ashore, where governance is opaque and the costs of due diligence, feasibility studies, and even hiring capable local workers and managers are high. U.S. companies, and the private sector in general, prefer sure bets over supporting foreign policy goals that could result in significant financial and reputational losses.

In addition to the recommendations this paper makes to enhance the DFC’s capabilities, another recommendation is to stand up a fund led by a fund manager to invest in ORAN and other telecommunications technologies in risky markets. This fund will be able to provide first-loss guarantees and debt and equity financing through a public private partnership akin to the Defense Advanced Research Projects Agency (DARPA). Based on this model, the fund could finance innovative solutions that would help U.S. providers find opportunities overseas in markets that need affordable digital technology infrastructure and products.

ICT is a priority for DFC investment. This sector is also a national security and foreign policy priority for Congress and the current presidential administration, driven by concerns of proliferation of Chinese technology around the globe.

Looking Ahead: Opportunities to Strengthen the DFC

The five-year anniversary of the passage of the BUILD Act, the upcoming 2025 reauthorization of the DFC, and the agency’s own efforts to revamp its strategy and organization provide an opportunity to evaluate the success of the agency, assess lessons learned and areas for improvement, and devise recommendations for both Congress and the Biden administration to consider to fully utilize the DFC’s financial tool kit.

For the DFC

  • Define “highly developmental,” “strategic,” and “bankable.” Defining the key terms of the DFC’s main mandates is critical to getting those seeking DFC financing and the agency’s board and staff on the same page, as well as for defining DFC’s mission in the development finance, foreign policy, and national security spaces. The U.S. Agency for International Development (USAID) and DFC have different views of what “highly developmental” means, and Congress and the administration may have different views on strategic investments. In a similar vein to the Development Advisory Council, a Strategic Investment Advisory Council should be formed at the DFC to provide guidance on projects that may not meet the bankability standard fully but would have serious impacts on U.S. national security and foreign policy goals.
  • Focus on results, not just returns. The DFC’s mandate of working in LICs and LMICs and focusing on major infrastructure projects will not result in significant financial returns for the agency. In fact, the DFC may break even or lose money on these projects. The DFC has two advantages here: (1) Congress has appropriated $30 billion to the agency, and (2) the DFC is not a traditional development bank (unlike the World Bank and other regional development banks, it does not have to be concerned with credit ratings). This means that the DFC can take greater risks and focus on potential results, not returns.
  • Address the income classification issue for eligible countries. Instead of using the World Bank’s income classifications, the DFC could develop or borrow from other development finance institutions’ lending criteria, particularly in countries that may have pockets of high-income areas that skew overall income classifications. This would open up Latin America, the Pacific Islands, and Southeast Asia to DFC investment. There are several considerations that the DFC could factor into determining eligibility, such as:
  • Does an investment in a UMIC have spillover effects in other countries?
  • Do high-income areas significantly skew the income-level classification for a country as a whole?
  • Would DFC investment benefit poorer areas?
  • Is the investment strategic?
  • Shorten the project approval time. The DFC has a partnership with the Australian and Japanese governments, paving the way for great cofinancing opportunities. However, each financing agency has its own terms sheets and agreements, making cofinanced projects less appealing to borrowers who may have to sign agreements with three governments. A common term sheet and process would help joint projects move along faster and create more opportunities to leverage each partner’s strengths.

The DFC should provide shorter and more user-friendly term sheets for smaller investments. A $10 million investment in a smaller company, particularly for those companies in LICs and LMICs, should not require the same lengthy paperwork as larger companies with the staff and resources to handle it.

The DFC should also regularly consult its staff for recommendations on streamlining the

various steps in the project financing approval process, including in relation to paperwork, due diligence, and working with other U.S. government agencies.

A Strategic Investment Advisory Council should be formed at the DFC to provide guidance on projects that may not meet the bankability standard fully but would have serious impacts on U.S. national security and foreign policy goals.

For Congress

  • Provide an equity fix in legislation. Participants in the roundtables were pessimistic that the Office of Management and Budget would reconsider how equity should be scored. Participants expected congressional leadership would be needed to convince banking and finance committees to push for change on this issue. Congressional members seeking to unleash the full scope of the equity tool should consult with the appropriate committees and ensure a fix is part of the revised BUILD Act.
  • Raise the CN limit from $10 million to $50 million. The CN process has become more of an approval process than a notification process, slowing down financial disbursements for much-needed investments. CNs should only be issued if an investment is more than $50 million, which is the threshold for a board vote and which, given its size, should attract more congressional and leadership attention than projects worth $10–30 million, for example.
  • Align the term of DFC CEOs with reauthorization timelines. Congress should consider five-year terms for the DFC CEO, similar to terms for the Federal Bureau of Investigation, Federal Reserve, and World Bank, providing consistency for a financial institution through changes in administration. No major bank or financial institution would create stability amid constant leadership changes. Putting a term structure in place would impose a sense of stability and confidence among borrowers or other investors seeking financing.
  • Increase funding for personnel. To meet its mandate and match expectations, the DFC must receive funding to make strategic hires, including of project lawyers, overseas personnel, and other key financial professionals. The DFC should aim for 100 new hires in the next fiscal year, at a budget of about $20 million. These new hires will contribute to business development and pipeline building as well as assist in project assessment to ensure smoother and faster approval or rejection.

For the Next Administration

  • Take a whole-of-government approach. The DFC is not the silver bullet for mobilizing private sector capital. The United States has several tools in its belt, including project preparation and feasibility studies from the U.S. Trade and Development Agency, export financing tools from the Export-Import Bank, and other funding awards to the Department of Commerce, among others, from the CHIPS Act and Inflation Reduction Act. The DFC may not be the right tool to use for every project or U.S. government initiative.
  • Identify what businesses need. More engagement with businesses will help shape how tools could be used to mobilize private sector capital in developing and strategic markets. Businesses are focused on returns on investment and safe bets. In coordination with U.S. financing agencies, the National Security Council should take the initiative in reaching out to businesses, holding listening sessions, and identifying actionable recommendations. It will take more than political risk insurance and equity financing to encourage U.S. companies to invest in LICs and LMICs, which are inherently risky.


There is a lot of discussion around making the DFC into a more forward-leaning agency that engages more in strategic investments. Certainly, the DFC should take more risks and invest in technology products and systems that could have future benefits for U.S. national interests. However, there is a fine balance between strategic priorities and what makes good business sense. One place to look for lessons learned is China.

The BRI was announced with much fanfare in 2013, with a pipeline of mega-projects around the globe. BRI investments in major infrastructure and manufacturing projects peaked in 2016, and since then there has been a shift toward digital technology and other projects that are more easily deployed and make more business sense. China’s “no strings attached” policy—meaning that projects are not tied to governance reforms, transparency requirements, or environmental standards—proved to be problematic for both recipient governments and China. Several projects remain unfinished due to a variety of factors, including poor local governance and corruption, debt issues, and poor risk management. Though the DFC and other U.S. federal lending agencies are hemmed in by restrictions and risk aversion, any reforms to the BUILD Act or to the DFC should not result in a race to the bottom.

This is an opportunity to build on lessons learned since the BUILD Act came into force and see what has worked and what has not. Much of this discussion should center around the thoughts of the DFC’s staff on what would increase their ability to build pipelines and execute transactions more easily. Additionally, and more importantly, it is important to engage with businesses that have worked with the DFC or that have avoided doing so and determine what tools would mobilize their capital in strategic and developing markets in critical sectors.

Erin Murphy is the deputy director and senior fellow of the Economics Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Daniel F. Runde is a senior vice president, director of the Project on Prosperity and Development, and holds the William A. Schreyer Chair in Global Analysis at CSIS. Romina Bandura is a senior fellow with the Project on Prosperity and Development and the Project on U.S. Leadership in Development at CSIS. Noam Unger is the director of the Sustainable Development and Resilience Initiative and a senior fellow with the Project on Prosperity and Development at CSIS.

This report is made possible through the generous support of Qualcomm.

Daniel F. Runde
Senior Vice President; William A. Schreyer Chair; Director, Project on Prosperity and Development
Romina Bandura
Senior Fellow, Project on Prosperity and Development, Project on U.S. Leadership in Development
Noam Unger
Director, Sustainable Development and Resilience Initiative and Senior Fellow, Project on Prosperity and Development