Last week, a bipartisan group of senators and representatives introduced the Better Utilization of Investment Leading to Development (BUILD) Act, which, if enacted, would create a new agency called the United States International Development Finance Corporation. The IDFC would absorb the Overseas Private Investment Corporation — the U.S. development finance institution that encourages American businesses to invest in developing countries by providing businesses with loans or insurance — as well as several functions currently performed by the U.S. Agency for International Development. The bill could likely receive White House support as the administration similarly called for a new DFI in its 2019 budget proposal.

With this bill, its sponsors are seeking to modernize the U.S. approach to development finance by authorizing additional financial services that are already utilized by many other DFIs. For example, in addition to OPIC’s existing ability to make loans, the new IDFC would be authorized to make direct equity investments, taking an ownership share in overseas development projects.

A key part of any such modernization should be policies that will protect the environments and communities that host development projects. Environmental and social policies, a common feature at DFIs, are crucial to ensuring that the proposed IDFC does not finance projects that cause environmental degradation, engage in illegal labor practices, or otherwise harm the local communities where the projects are located. Without effective policies and practices in place, U.S. taxpayer money could facilitate abuse of the very communities that the projects are intended to benefit. For instance, between 2008 and 2011, OPIC approved over $200 million in loans for a biomass company in Liberia, which was supposed to rejuvenate family farms and create sustainable energy for Liberia. Instead, the company caused serious human rights, labor, and environmental abuses, including sexual abuse by company employees of local woman, leaving hundreds of Liberians worse off than they were prior to OPIC’s investment.

Read the full article about what a new U.S. financial dev institution would need to succeed by Kindra Mohr and Brian McWalters at Devex International Development.