Rethinking Development Finance for Economic Transformation

This chapter critically examines the evolving role of development finance as a catalyst for economic transformation, particularly in Africa and Asia. It integrates classical and contemporary theories—including capital formation, financial intermediation, public goods, dual-gap, endogenous growth, blended finance, and climate finance, while highlighting the emergence of hybrid frameworks that better address informality, digitalisation, climate resilience, and South-South cooperation. Through comparative analysis, the chapter demonstrates Asia’s advantages in institutional strength, innovation, and integration into global value chains, contrasted with Africa’s structural gaps but growing progress in financial inclusion, digital finance, and regional trade. New hybrid models, such as the Hybrid Political-Institutional Finance Theory, Green-Decentralised Development Finance Theory, Regional Digital Infrastructure Theory, and South-South Development Learning Theory, are proposed to enhance inclusivity, resilience, and innovation in development finance. Using hypothetical data and trends for 2020–2030, the chapter illustrates how these models can strengthen financial ecosystems, foster digital transformation, and support knowledge-driven growth. Case studies from Botswana, South Africa, the Democratic Republic of Congo, Ethiopia, Kenya, and Nigeria further contextualise successes, limitations, and lessons in mobilising and utilising finance for structural transformation. The chapter concludes that development finance must shift from a narrow “finance-as-capital” paradigm to a broader “finance-as-capability” approach, where economic transformation is driven by inclusive institutions, technological adaptation, and context-sensitive financial systems that prioritise sustainability and equitable growth.