Wall Street lines up as development banks pivot to securitization

What changed and why banks care

At the start of October, a group of 30 multilateral and development finance institutions formally committed to wider use of SRTs and CLOs to achieve capital relief, a response to shrinking support from traditional rich-country backers. JPMorgan Chase and HSBC quickly framed the move as a new lane for commercial banks. It is "quite a big leap forward" for the MDB world and has "created an opportunity for us," said Faheen Allibhoy, who runs JPMorgan's development finance and advisory team. HSBC's Himesh Patel, a managing director who leads public sector banking for EMEA, said the shift "will create further opportunities across structuring, risk distribution, capital markets execution and investor placement."

The timing lines up with COP31 in Turkey, where global leaders, finance chiefs and climate experts will focus on scaling funding for poorer nations. Both JPMorgan and HSBC will have teams at the summit, as will MDB representatives. Leslie Maasdorp, who serves as chief executive of British International Investment, said, "A great outcome from COP would be not just placing adaptation and resilience central to the climate-finance domain, but within the financial sector."

How the deals work and what MDBs want

SRTs and CLOs are transactions that move the credit risk of MDB loans or bonds to third parties such as insurers or hedge funds, which can free up balance sheet capacity. MDBs already tested these structures before the Oct. 1 push, and the stakes are large given they collectively hold roughly 1.5 trillion dollars in development assets. The goal is twofold, said Bart Raemaekers, a director at the Asian Development Bank focused on private sector mobilization and blended finance: bringing in outside investors preserves MDB capital, and over time it helps shift funding of projects to private markets rather than relying on MDBs.

With capital scarce, "trying leverage is the best way they can show MDBs are trying to meet the moment," Allibhoy said. Building a CLO market will require repetition and templates: "You can't do one-offs, you have to be able to issue at a regular cadence," she said, adding that more standardization is the aim. MDBs are already in detailed talks with institutional investors on potential deal formats, Raemaekers said. The formal pivot follows a 2024 G-20 call to rethink how MDBs assess their impact, and development banks know mounting pressure to mobilize capital leaves them little choice but to change, he added.

Who is kicking the tires

Investors and intermediaries are circling. As transparency improves, PGGM expects interest in MDB securitizations to increase, according to Luca Paonessa, the executive in charge of credit-risk sharing strategy at the Dutch pensions manager. Development finance used to look like a "black box" to many institutions, he said, but more MDBs now disclose default, loss and origination data, turning it into something investors "can definitely work with." PGGM runs strict due diligence on partner banks, Paonessa added, reviewing how they assess and monitor project risk and using internal models and historical data to price transactions.

Deal complexity is also pulling in insurers. At Aon, Cecilia Tse, a director in Asia Pacific covering risk, climate and sustainability solutions, said the broker is advising banks exploring MDB securitizations so they better understand project risks. The aim is to help "risk owners build resilient assets, making it more insurable, and therefore bankable," she said.

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Other banks are signaling support. Deutsche Bank called the move a positive step and said it favors clearer methodologies and recognition of tools like guarantees, various risk transfer set ups and capital markets funding programs. Still, the bank cautioned that expanding climate finance will hinge on a steady supply of credible, well-vetted projects and on ample investor appetite able to take down large volumes of issuance.

The fine print for risk and returns

There is unease about who bears losses. Some worry the structure could tilt so that private investors earn higher returns while taking on the least risk, leaving public bodies more exposed. A recent ODI Global paper underscored the distinction between bringing in private money and shifting real risk to private holders, arguing the true yardsticks are whether total financing grows, how its mix evolves, and what development outcomes follow.

Kara Succoso Mangone, who leads Goldman Sachs's sustainable finance group, said MDBs can play a catalytic role by drawing in private investment, plugging market gaps and supporting new technologies as they scale. But as Allibhoy put it, "SRTs and CLOs are useful tools but they're not going to solve the entire issue at hand, which is that development needs far outstrip the funds available to MDBs."

What this means for your portfolio

In plain English: MDBs are trying to stretch limited capital by shifting credit risk to investors willing to take it, and big banks want to intermediate. As disclosure and standardization improve, access may widen for pensions, insurers and hedge funds, while the open question is how risk and return are sliced between public and private capital. Watch for cadence and consistency of issuance, the data room on defaults and losses, and whether investors are being paid to shoulder genuine risk.

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