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How innovative financing methods can help multilateral development banks drive progress

For MDBs to free up additional capital for lending, the roadmap highlights the need to scale innovative financing mechanisms, such as co-financing, hybrid capital structures, private capital mobilisation, guarantee frameworks, and originate-to-share models.

20/10/2025 · 4 minute read

At the fourth international conference on financing for development in July 2025, global leaders reaffirmed their support for the G20 roadmap aimed at creating “bigger, better, and more effective multilateral development banks” (MDBs). With a US$4 trillion gap in sustainable development funding, accelerating the implementation of this roadmap needs to gather pace.

For MDBs to free up additional capital for lending, the roadmap highlights the need to scale innovative financing mechanisms, such as co-financing, hybrid capital structures, private capital mobilisation, guarantee frameworks, and originate-to-share models. Private capital mobilisation remains a “system-wide priority,” with MDB leadership committed to accelerating the current positive momentum.

However, as underscored by the United Nations Environment Programme Finance Initiative (UNEPFI), mobilising sufficient private capital in emerging markets faces three key challenges: project pipeline, data limitations, and the perception of high risk relative to returns. This is where Marsh’s expertise in risk advisory and insurance can play a pivotal role. By helping MDBs design and implement tailored risk mitigation instruments, Marsh can support expanding investor participation and confidence.

The role of insurance

The insurance industry can play a key part in helping MDBs mobilise sufficient private capital to bridge the funding gap. Insurance markets have a proven track record of supporting MDBs in emerging markets, providing vital risk mitigation and enabling increased lending. The insurance market has substantial capacity and appetite for underwriting credit risk, especially as credit risk provides valuable risk diversification benefits that complement other risks within insurers’ underwriting portfolios.

Beyond traditional single name or asset credit insurance, some MDBs are exploring portfolio solutions such as portfolio synthetic securitization with insurers. Portfolio synthetic securitisation enables sharing of credit risk across a portfolio of diverse assets, while maintaining them on the MDB balance sheet. It can offer flexible, scalable, and cost-effective protection for MDBs and offer investors diversification and a range of risk and return options through the “layering” of risk into senior, mezzanine, and subordinate tranches.

Highly rated insurers are well placed to provide mezzanine layer protection in portfolio synthetics. Protection can be offered in the form of non-payment insurance, risk participation agreements, or guarantees for the underlying portfolio and in some instances balance sheet. Multiple insurers can share risk in a mezzanine layer, benefiting portfolio risk limits and increasing balance sheet capacity.

How Marsh can help

Marsh has played a pivotal role in supporting MDBs’ financing efforts through the insurance markets over decades. We recently facilitated a multi-year capital adequacy protection facility for a regional MDB, across 66 countries and 15 sectors. The MDB shared its total banking assets on a diverse and growing credit portfolio with over 15 Lloyd’s syndicates, to reinforce their stable leverage ratios and provide additional capital protection.

Combining our broad credit risk and portfolio structuring expertise, close insurer relationships, thorough the depth of quantitative analysis, and knowledge of credit rating agency methodologies, Marsh can bridge the gap between insurance underwriters, credit rating agencies, and portfolio managers. Our advanced portfolio credit risk platform provides comprehensive data analysis, modelling, and reporting capabilities so that transactions are scalable, transparent, have gone through thorough due diligence and perform in line with expectations.

Future development financing

As global development challenges intensify amid limited public funds and geopolitical uncertainties, MDBs must embrace innovative financial solutions. Synthetic portfolio securitizations — supported by non-payment insurance capacity — offer a practical, scalable way to de-risk exposures, free up balance sheet capacity, and accelerate funding for high-impact projects.

By harnessing these innovative mechanisms, MDBs can close the financing gap sustainably, ensuring that vital development initiatives reach those who need them most. The future of global development depends on bold, strategic partnerships, where insurers and private capital play a central role in shaping a more resilient, equitable world.

For more information, please speak to your Marsh advisor.

Our people

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Burcu Guner

Head of Risk Capital Analytics, Marsh Advisory

  • United Kingdom

Alec Baker

Alec Baker

Consulting Director

  • United Kingdom

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