Development impact is central to DFC’s work. To achieve its impact mission, DFC has developed an impact strategy that identifies priority sectors and strategic priorities and includes impact targets across each.
DFC reviews and analyzes the potential development impact of each project prior to approval and monitors the impact over the life of the project, beginning at the investment approval stage. Managing for impact means that DFC compares development objectives to actual results, suggests adjustments where needed, and identifies learnings that help strengthen the impact of existing and new projects. At a portfolio level, DFC aggregates development impact performance data for each priority sector and strategic initiative, compares actual performance to DFC’s impact targets, and explores changes in performance over time among key portfolio segments. In this way, DFC can identify areas of under and overperformance in terms of development impact results and surface lessons that can inform decisions at the overall portfolio and strategy level.
Impact Management Tools
DFC uses many tools and methods to assess development impact:
- Impact Theses: The Impact Theses outline DFC’s evidence-backed approach to impact management for key development sectors and strategic initiatives. This approach aligns with the United Nations’ Sustainable Development Goals (SDGs), the Five Dimensions of Impact, IRIS+, and HIPSO.
- Impact Quotient (IQ): DFC’s Impact Management framework, IQ, provides a standardized yet flexible methodology to estimate the development impact of each project.
- IQ results table: A set of 3-5 key indicators derived from the IQ assessment that represent the key expected impacts of each project, alongside baseline and target values. Results tables are used to measure the project’s progress towards its key development outcomes over time. DFC uses these indicators to collect key data from six months after the project becomes active and engage with clients early in the project lifecycle.
- Development impact screening table: All prospective DFC projects are prescreened using a standardized template for their potential development impact in alignment with DFC’s impact strategy and the United Nations' SDGs.
- Development outcomes survey (DOS/008 form): DFC sends this comprehensive annual survey to all active projects to gather development outcome data and measure development performance at each project level as well as the aggregated portfolio level.
- Site monitoring: In addition to gathering data through client surveys and the IQ results tables, DFC conducts site visits to select projects on an annual basis. Site monitoring enhances DFC’s ability to track the development impact of its projects and follow up where needed.
Evaluation and Collaborative Learning
To obtain a deeper understanding of developmental outcomes, DFC conducts portfolio performance evaluations, which are deep dives into select portfolio of projects with a sectoral, thematic, or country-level focus. The learnings gleaned from performance evaluations help inform changes to DFC policies, procedures, project structuring, and/or strategy. They also contribute to the learnings of the wider impact investing community.
Portfolio Performance Evaluation Publications
- Dalberg Advisors: DFC Loans to Latin American Financial Intermediaries
DFC commissioned Dalberg Advisors to undertake an independent development impact performance assessment of DFC loans to financial intermediaries in Latin America. Between October 2021 and March 2022, Dalberg reviewed 36 DFC loans across 29 financial intermediaries in nine countries to provide a comprehensive view of impact performance against development objectives and to identify lessons learned. The assessment evaluated the performance of financial institutions and their relevant portfolios across three dimensions: 1) development outcomes; 2) compliance with DFC loan covenant; and 3) likelihood of the sustainability of impacts after DFC's loan matures.
- Capital Mobilization Impacts Resulting from DFC’s Political Risk Product: McKinsey Impact Assessment Report
To better understand the effectiveness of DFC's political risk insurance (PRI) product in achieving the agency's core mission of mobilizing private capital to achieve positive developmental results, DFC commissioned McKinsey to conduct an independent study framed around three primary objectives: 1) to understand the PRI and reinsurance context and channels for impact through a detailed analysis of the market landscape and a robust literature review; 2) to critically review the impact of 14 projects that have received DFC support by analyzing quantitative data and conducting a qualitative assessment through in-depth interviews with key DFC and market stakeholders; and 3) to develop a clear set of lessons learned and recommendations that DFC can consider that could allow the organization to deploy its PRI and reinsurance products more strategically and better measure and articulate its impact on mobilizing private capital.
Leading Harmonization of Practice
DFC is also a leader in harmonizing impact measurement and management across the impact investing, development finance and multilateral development bank communities so that development impact results can be communicated in clear and comparable ways. DFC’s impact management tools mentioned above are aligned with these standards, principles, and frameworks.
DFC’s work has helped inform and shape several standards, principles, and frameworks including:
- Harmonized Indicators for Private Sector Operations (HIPSO)
- Operating Principles for Impact Management (OPIM)
- UNDP-OECD Impact Standards for Financing Sustainable Development (IS-FSD)