A financial intermediary is any institution that connects lenders with borrowers – such as banks, private equity, venture capital funds, leasing companies, insurance and pension funds, and micro-credit providers.
In debates on climate finance, the term is generally only used to refer to private sector intermediaries. It typically refers to a funding structure where money is provided by international financial institutions to companies in the financial sector, rather than being directly used to fund projects. The idea is that this money, in the form of loans or risk guarantees, will encourage private financiers to invest in climate-friendly projects by reducing the perceived risks. To date, there is little evidence to support this claim.
Critics of too great a reliance on financial intermediaries point to the example of the International Finance Corporation, whose lending has had few environmental benefits and done little to benefit the poor when ich has a poor record when it passes through intermediaries.
Further reading and resources
Bretton Woods Project and ‘Ulu Foundation (2010) “Out of sight, out of mind? The International Finance Corporation’s investment through banks, private equity firms and other financial intermediaries”