Person-to-Person Financing for
Development:
Governing the Intermediaries
Kevin E. Davis
NYU School of Law
Anna Gelpern
American University Washington College of Law
The Privatization of Development Assistance
NYU School of Law
December 4-5, 2009
Alternative business models
- Charity
Funder
Home country
Intermediary
Host country
Intermediary
Recipient
- Charity for social enterprise
Funder
Home country
Intermediary
Host country
firm
– Investment funds
Funder
Home country
Intermediary
Host country
Intermediary
Recipient
Funder
Home country
Intermediary
Host country
Intermediary
Recipient
Screen shot
Funder
Home country
Intermediary
Host country
Intermediary
Recipient
The future
Funder
Home country
Intermediary
Host country
Intermediary
Bank?
Mutual fund?
Recipient
Potential problems
Credit risk
Funder
Home country
Intermediary
Host country
Intermediary
Recipient
Potential problems
Credit risk
Funder
Home country
Intermediary
Currency risk
Host country
Intermediary
Recipient
Potential problems
Credit risk
Funder
Home country
Intermediary
Host country
Intermediary
Recipient
Regulatory concerns:
Currency risk
•Uninformed funders
•Uninformed recipients
•Home country foreign policy interests
•Host country institutional development
•Host country development
•Systemic risk
Existing regulatory framework
Regulation of charities
 Must be nonprofits
 Must be organized under US law.
 Restrictions on non-charitable
activities and on risky investments*
*Not applicable to “program-related
investments.”
 Administered by IRS and state
attorneys general
Regulation of financial institutions
 For investment companies:
 Disclosure, semi-annual reporting,
conflict of interest regulation
 For banks:
 Chartering rules, activities restrictions,
minimum capital requirements,
supervision, and deposit insurance
 Robust cross-border co-operation
Private ordering
Examples:
 CGAP Microfinance Consensus
Guidelines: Good Practice Guidelines
for Funders of Microfinance
 CGAP Microfinance Investment
Vehicles Disclosure Guidelines for
Reporting on Performance Indicators
(2007)
Recommendations
Motivating insights
 Many of these transactions ought to be
regulated like financial products.
 Regulation of international finance should
be integrated.
 Regulatory framework should accommodate
interests of both home states and host
states.
 No single state-sponsored regime will be
capable of accommodating diverse needs of
parties to these transactions.
Specific recommendations
1. Reform charities laws to permit
international regulatory competition
2. Apply securities law to all actors that
promise financial returns, regardless of
charitable status or level of returns.
3. Enhance monitoring.
4. Promote regulation by host states.
5. Promote private ordering as a supplement
to legal regulation.