For nearly a decade, development finance institutions have talked about creating markets rather than just funding individual deals. The International Finance Corporation unveiled its Creating Markets strategy back then, framing it as a distinctive approach to development finance. But something has shifted lately. Institutions across the sector are not just dabbling in this idea anymore — they are placing it at the very center of their strategies. British International Investment’s newly released framework is explicitly built around building markets. The Dutch development bank FMO has been expanding its own market creation program. Networks like the Catalytic Capital Consortium and the Growth Firms Alliance are bringing foundations and investors together around the idea that capital should be deployed strategically to address systemic challenges across entire markets.
This momentum is backed by fresh research making the case from different angles. A paper from Neil Gregory at ODI argues that development finance institutions should prioritize potential spillover effects over direct impact. Work by Sam Attridge and Mary Svenstrup at CGD reaches a similar conclusion from another direction, emphasizing that the real problem is not a shortage of capital but an absence of investable opportunities, functioning local capital markets, and the connecting tissue between them. The sector as a whole has embraced the rhetoric, and for good reason — economic growth ultimately comes from markets that function on their own, not from isolated investments that disappear once external support dries up.
Yet embracing the language is one thing. Changing how investments actually get sourced, assessed, and measured is quite another. Most development finance institutions still evaluate their deals primarily through direct metrics like jobs created or loans disbursed, which are easier to count and attribute than messy indirect effects. But nearly all long-run development impact happens through those messier channels — a lending methodology replicated across thousands of businesses, local fund management talent incubated through a first-time fund, a pioneer firm anchoring an entirely new sector with competitors and suppliers springing up around it. If these systems continue treating market effects as just one consideration among many, market creation risks becoming old wine in a new bottle rather than a genuine paradigm shift.
Additionality presents a similar challenge. For years it has served as the critical test ensuring public money does not crowd out private investors, and rightly so. But if the goal is genuinely building markets, additionality alone cannot justify an investment. Filling a financing gap for one company satisfies traditional additionality tests, but so does establishing replicable financing structures or backing first entrants into entirely new sectors — transactions whose implications for market development look dramatically different. The harder question institutions must ask is whether a given investment can actually change the conditions that made capital unavailable in the first place. Secondary funds, listed vehicles, public market pathways all represent moves beyond narrow additionality toward building infrastructure that makes financial systems work better for everyone.
Making this shift real will require accepting some discomfort along the way. Prioritizing market effects above direct impacts means living with less measurement precision and learning to track credible accounts of influence even when they resist easy quantification. It means changing incentives so deal teams pursue replication potential over clean attribution stories they can report confidently to stakeholders. None of this is easy for risk-averse bureaucracies accountable to taxpayers and donors who want measurable results. But the alternative is continuing to fund isolated successes while leaving surrounding markets unchanged — calling it market creation while doing little more than rebranding business as usual.
