Against the background of DEG being mentioned in media coverage on the Pandora Papers, we would like to issue the following information.
DEG’s development policy mandate is to finance and advise private enterprises investing in developing countries as key drivers of employment and income. For those investments, DEG provides such enterprises with long-term financing on market terms from its own funds. No taxpayers’ money is used. DEG reaches private enterprises in its partner countries in two ways: One way is to finance them directly with loans and equity investments. The other is to provide capital to local banks and other financiers, which in turn supply mainly small and medium-sized enterprises (SMEs) in developing countries with financing tailored to their needs. This enables these local enterprises to grow and develop.
DEG is aware of the general framework conditions in developing countries, including the challenges in respect of good governance. It therefore examines potential investments with special care before any decision is made to allocate funds.
DEG also finances local commercial banks in Panama. DEG provides these banks with long-term investment capital, which in many cases is unavailable to them locally, in order for them to grant loans to local small and medium-sized enterprises. We operate here on the subsidiarity principle in relation to commercial banks. Analyses of the development impact of the banks financed in Panama have shown that these institutions provide loans to some 17,000 SMEs, around 10,000 of them in Panama. The remaining 7,000 SMEs are also based in the region.
In addition, DEG offers advisory services to the enterprises and banks it co-finances in order to support them and develop their knowledge in areas such as environmental and social management, corporate governance, resource efficiency and training. Various advisory services have also been provided to the banks co-financed in Panama, for instance on topics such as risk management or environmental and social management.
For every project, and especially those in countries such as Panama, DEG carefully examines various aspects before providing loans or equity capital. These aspects include the corporate structure, shareholders and beneficial owners. The beneficial owners in each case are clearly identified at regular intervals through KYC (know your customer) checks. Our own specialists, supported by external experts, examine economic, technical, legal, environmental, social and corporate governance aspects. We also regularly draw upon external expertise for assessment purposes, including for integrity checks and audits.
The so-called use of funds contract with receiving banks specify that the funds provided by DEG are earmarked for the purpose of lending to SMEs. The banks must provide DEG with documentation showing that the funds have been used accordingly. The use of funds is secured by contractual guarantees and regularly verified.
DEG adheres strictly to all laws and the relevant German government guidelines. The measures undertaken prior to providing finance also include checking the co-financing company and relevant partners for possible indications of money laundering or other activities relevant from a compliance perspective.
We firmly believe that transparent information about the way we operate and our financings helps us fulfil our development mandate. DEG is therefore in regular dialogue with various stakeholders, including civil society. We always take tip-offs and criticism regarding co-financed projects seriously and follow them up accordingly. Another part of our transparency work, which we are continuously enhancing, is the publication of comprehensive information, including annual reports and annual development reports.
Since 2015, the DEG website has also contained a database of investment-related information on the investments financed using DEG’s own funds. These publications each contain information about the respective customer, the purpose of the investment, the financing volume, and the environmental and social category. Publication is subject to approval of the customer and is obtained individually. In 2020, DEG again enhanced its disclosure policy. For land-related investments (large investments in the agricultural sector with primary land use > 5000 ha as well as large renewable energy and mining projects), which, as a general rule, are particularly relevant in terms of their environmental and social aspects, a summary of the environmental and social action plan is published on the customer’s website following approval of the financing.
