Stefania Bazzoni
Stefania Bazzoni is currently Chief of Staff for the Council of Europe Development Bank. She was previously Head of Office at the Ministry of Economy and Finance – Italy, in charge of institutional relations with multilateral development banks, EIB and European affairs (ECOFIN). Among her other engagements, she was Senior The World Bank’s Counselor in the Office of the Executive Director for Italy and several other countries and Executive Director of the Inter-American Development Banks.
From my point of view, what I've noticed is that things have evolved over time. When I'm talking about international financial institutions, right before, the model was simply giving money to the government. And then basically, the governments were deciding with the institution which project to pursue, but there wasn't much involvement of other stakeholders. Over time, it has become evident that, first of all, you really need real ownership from the government. I'll give you an example. If you want to find out something, but the government is not really convinced, they will not do it. So the concept of ownership is really important, but this was just the very first step.
— Stefania Bazzoni
Interview transcript
Great. Let's quickly introduce you to Iskra before we start.
Sure, with pleasure. Thank you again for having me for this chat. I started as an economist, and all my background is in economics. I studied economics and did my PhD in economics. Basically, I started with the idea of working at a university, but then I wanted to be more hands-on in policy issues. So I started working in international financial institutions. The first institution I worked for was the International Monetary Fund. Then I joined the Thai Treasury, where I looked at institutions from the side of a shareholder and represented the shareholder as an executive director, a member of the board in those institutions. Finally, I wanted to be more in motion, so I now work for a small development bank based in Paris, the Council of Europe Development Bank. We are the financial arm of the Council of Europe, which is very much focused on human rights and justice. We promote social justice and social cohesion in Europe through our projects. We were born after the Second World War because of the continental displaced people, refugees, and migrants from the world. Our mandate has been extended to social cohesion in general. So this is basically my 30-year career span. I started as an economist, and now my motto is policy from different angles. Here, I'm not doing policy because I'm head of the president's office, so I do everything. But being able to work for a small institution and liking the strategic part, I'm still quite involved in strategic issues for the bank. The way I see impact is from the angle of multilateral financial institutions, for the good and the bad. So what they can do, what they failed to do, what they tell you that they do, but they really don't look. This is the angle. I've never been on the ground myself, except for visiting projects that have been financed by these institutions. In particular, I've visited many projects that have been financed by the World Bank and the African Development Bank. These two institutions ask shareholders to pour money into financing these projects every three years, because these projects tend to not produce a return for these institutions. They are not grants, but rather payback. However, since these are long-term projects, we know interest for the bank. The bank cannot continue to do these types of projects without resources from donors. So on the one hand, they ask for money, and on the other hand, they ask us to show what they realize. In this context, what is called the replenishment of the funds for these projects is in the jargon. Shareholders from donors are invited to these projects. In this context, I've seen projects in Africa and Asia. My travelling and knowledge on the ground, if you want, is filtering. Because it's always in this context, right? I haven't really done an independent evaluation of what was proposed to us.
When we started this project, we created a list of people we wanted to talk to. You were my first choice because I've known you for a while and I know you're all about making an impact in different ways. I remember when you were at Bocconi, you were already working on this. Anyway, that's why I wanted to talk to you.
You talk about impact in terms of its effect on the grounds in other countries. My personal interpretation of impact is also for myself. For example, when I was in a position of being an Executive Director, representing countries on the board, I did quite a lot for women's representation. Both on the board, if you look at the board of all these financial institutions, 90% or more are men. So I tried to have governments nominate executive directors who are women. It's a tough job. When you're within an institution, actively try to promote progression for women in institutions because when you look, you see we got the edge certificate second level. So the bank is doing things to promote women in institutions, but again, we are 50/50 all together. The more you go up in the rankings, the fewer women represent. Of course, being an international financial institution, we don't have issues like a gender pay gap or things like that. But there are hidden biases. Now we've tried to make sure that all the policies and actions are in place to give equal opportunity. This is a different angle of impact. It's not on the ground, but more within the institutions I work with. I've tried to promote governance and the sanctioning of these institutions.
In your opinion, what are the key barriers to enable more participatory action from all parties involved, especially in a more democratic way? Currently, the funders often impose their models and have a say in operations and decisions through clauses. How can we enable more people to contribute to decision-making and have a voice in the process? I know it's a bit of a vague question, but let's explore it together.
From my point of view, what I've noticed is that things have evolved over time. When I'm talking about international financial institutions, right before, the model was simply giving money to the government. And then basically, the governments were deciding with the institution which project to pursue, but there wasn't much involvement of other stakeholders. Over time, it has become evident that, first of all, you really need real ownership from the government. I'll give you an example. If you want to find out something, but the government is not really convinced, they will not do it. So the concept of ownership is really important, but this was just the very first step.
Then, I think that with the request also coming from civil society, these institutions need to have much more stringent environmental and social principles. This idea of involving more stakeholders when decisions are taken was really a key element. So now, we have environmental and social standards that we have to approve for all our projects. If these are interventions that you know will impact people, then there is a need, not just a desire, to consult and inform them about how this will happen.
This second step was more in the way I read it, sort of defensive stuff. What do I mean? For example, you needed to build a road, right? And then, to build the road, you have to resettle some people who were living around the land. So you wanted to consult with them to make sure that they knew about this and were okay with the resettlement. So we will require a settlement plan to be discussed with the people involved. But this was done so as not to have trouble afterwards. You say, "Okay, we've consulted you. This was about to come. We gave you fair compensation. We moved you to another area." And what I'm saying is that this new step that we start with, we start to see now, is a different step. It is a step in which the community would be involved in saying, "Do we need this road? Does it need to go through here or somewhere else?" and many other elements. Is this road really connecting in the best possible way with a gender lens of attention? What would be the implication? Okay, you do the road, but you don't do the feed role. So why do we do the road and not the federal? So this level of more participation of the community in general when the project is designed, as we see it, is very difficult. Why is it difficult? Because it takes time. It takes a decentralized administration functioning. It requires a government that is willing to hold this participatory process, and it's not an easy thing to achieve.
Where I am now, that is a bank that works in more developed countries, if you want, because we are also working in France, Italy, and Germany, we see a lot of this participation. For example, we finance city resilience. So we've just financed Genoa, for example, and they want to put in place a lot of measures to strengthen the resilience, also from a climate point of view, of the city. Or we have financed Barcelona. If you look or you can Google, we financed the Barcelona super block project. We know the human environment. In this case, the authorities are very much willing to have a participatory process, but to enter a participatory process of the local community requires a more mature government, stronger decentralized government. So, as a sort of much more established system of relations in society, and it's more difficult to find in countries where the system of relations is less developed. Having said that, you know, the institutions now try to do it because they have also realized that the game, remember I mentioned before the concept of ownership, you also need ownership at the level of the community. And then there is a lot of literature in this field that when you go in microfinance, community, you know, awareness of what you are doing, the community ownership, and make the process of project functioning much better than to have something from the top.
What's a good example you've seen of a road? It was a super insightful and great metaphor for what's happening. You even mentioned that having your own road isn't the right idea. Instead, the focus should be on impact and initiative.
Do you know of any existing practical tools that people, organizations, foundations, or development banks can use to involve people from the very beginning of an impact initiative? I'm thinking of tools that go beyond just monitoring. Privacy is one of my research priorities, and I find the idea of enabling participatory action from the start to be super interesting.
Brian and I were asking ourselves if building the next Impact Fund is really the right thing to do. Maybe there's something else in the domain of impact that's needed more than just another fund. Do you know of any existing tools that we could explore?
What I know is that basically it is communication, communication done to move from the look of the central government to look to move to local government. So there is no one recipe that fits all; it will depend on how much you know the process, the Ceylon process, in each country is organized. The more centralized it is, the more difficult it is. The more decentralized it is, and also the more the local governments can take decisions, the easier it is. The more the local government is willing to have this participatory process where they're talking to people and asking people, the more you can have this participatory process. But I'm not aware of any specific tool. Again, working and trying to work and finance wherever possible, because it's not always possible to work more with the subnational. The more you go with the periphery, in a sense, the more this is possible.
Iskra: I find it really interesting to hear about this topic. One of my questions is, what are some examples of the implications you've seen? You've mentioned a few times that it's important to understand the implications of what will happen and how to judge them. How do you approach determining the potential implications of a project, like building a road (to use a metaphor)? Do you rely on input from the community, or is that something that's left up to the government and local communities to decide?
I mean, we know where I work now. It's kind of left more to the government because, as I was telling you, decentralized governments are very effective. So, take the Barcelona example, they want to do a participatory process. When going to other countries where this is less of an image, and then I'm referring more to when it was working like in the quarterback or type of project. You have a project team on the ground, you will have an expert on transportation on the ground. You need a company to come to the country so we will have social experts, we will have transport experts, we will have gender experts, so a big team of people there that you know will not stop at the government level or leave the government to decide, but they are really much more hands-on. They will visit the community, they will ask, they will maybe force a local call, consult and everything. So, again, it must be a joint effort between local people because you don't want to learn from Washington and say, "Oh, by the way, we are here to talk to you." So there is a need to also put together the right group. Language is an important thing to make sure that you communicate also based on the language. You cannot learn to speak English, you know, so there are also many global associations that are already active within the community. So I'm saying partnership and being on the ground and understanding the reality. I haven't done a project myself, and when I was talking to the project teams, this is what they will do. This is what they will do and they will do more, the more the project is like infrastructures at the community level. If it is on the budget to the country, like you give money to the government, you don't do it. If you are advising the government on how to reform education, you might not have this participatory approach. But then when you go and you build the school or you have to discuss with the local community what is best for the school. Do you need the container? Do you need daycare for the kids because of school? You have to understand the reality. We've seen many flexible variations, building schools in India and Africa where there were none before, but people don't always understand why they need to go to school or what it is. There has been an evolution in thinking; before, the idea was to build, but now the idea is to look at what is necessary for the building to happen, so your kids can go to school. Sometimes we discover that adding things that seem obvious, like the possibility for kids to stay overnight, makes it possible. Otherwise, they would not attend school if they had to work two hours to go to school and two hours to go back. Providing a good meal is also a great incentive for families to send their kids, especially if they don't have enough money to feed them at home. So, it's important to understand the reality, but this is very time-intensive, resource-intensive, and clearly very costly.
On the other hand, you mentioned the benefits of being on the ground, not just for the project itself, but for the sense of ownership and connection among all parties involved. You shared a story about visiting a project in Latin America and how excited you were to see the benefits firsthand.
Are there any existing tools or programs that create proximity between funders and decision-makers of impact-driven projects and the opportunity to be on the ground to see the benefits? This may seem like a naive question, but as researchers, we are not experts in finance, but rather the creative process. The bigger question is why more funds are not being unlocked to create impact, despite the large pockets of money available. One assumption is that people are not in touch with the benefits of unlocking funds for a more positive future.
I mean, there are plenty of funds available. But the reason why the money doesn't go there is purely financial: there's too much risk. We see around the world a lot of funds, pension funds, investment funds that are now very interested in impact and doing socially responsible project finance. This is why institutions like ours are going on the market and issuing bonds. These are financial people who don't want the risks of the project. To undertake this project is too risky. So what do they want? We go to them and give them a piece of paper that says this is our Social Inclusion bond. We tell them that if they give us the money, we will do social projects with it. Then we need to report annually to them about the type of social projects we have done.
So what is it? What do they expect in exchange if not financial return?
Now they do expect a financial return, but they want financial returns and impact. Okay, but they don't want to take the final risk. So by buying our bonds, they see us as a solid financial institution, and we take the risk of the project. So your first question is why doesn't the money go to create more impact? It's a financial consideration linked to risk. Okay, so even those who claim to want to finance impact do want a return for that risk. That is not compatible with the return on investment. It's financial, but let me give you an example. If I need to go and convince, as I will, we will try to do cities also in Europe to create and build long-term housing solutions for the homeless. Okay, this is not really a priority of a city to try to find a long-term solution for the homeless, right? So our margin, our interest rate, is very low, and it's too low for the financial industry. So why did my life ask to build houses or shelters or solutions for the homeless? They don't want that risk. And our bond is something in between them and us. It makes a lot of sense. So this is for your first question, why doesn't the money create impact? Because investors do not want to take risks. Your second question, what are the tools to show the impact? It depends on how you look at it. For investors, there are now guidelines on reporting, so we have to tell them what we do. There are agreed principles. But it's very much if you go on our website, we will publish the social bonds report soon. So we are going to tell investors that with the money they gave us, we constructed that many houses, we have done that many schools, we have provided this back two years ago, we provided and had to buy that much equipment for COVID. This is the type of report, and the more you are able to report and really show that the money has been used or what was given to you.
So, poor communication is one issue. Therefore, effective communication is crucial. It is important to report accurately on what is considered important. As I mentioned before, the project platform we visited was limited and not suitable for our needs. However, the use of media, videos of project interviews, local community posts, and the local press are becoming more and more important. These communication channels allow us to showcase the work achieved on the ground more effectively. This is what I know.
This is fantastic is actually
Iskra I have many questions, but I want to discuss with you because you mentioned pioneering and reporting back. It seems there is a misalignment between the risk assessment and the desire to manage risk, and the way you are addressing it is by issuing a bond and communicating how the money is spent. What was the driver for your organization to pursue this approach for creating impact and obtaining necessary funds?
What we were doing was issuing bonds on the market anyway, right? Because we found that our project issuing bonds on the market was like all other financial institutions' development. However, we thought that we wanted to create an impact on two sides. So if we were just issuing bonds, we would have just done our project without having responsible financiers. So it could have been anyone, right? It means that we wanted, quote-unquote, to educate and to bring more financiers interested in impact, not just in interest. To say, "look, this is a way for you to achieve both." So you are financing us, but you are also telling us that these are priorities for you. So the reason why we did it was not that we couldn't raise the funds. We could raise the funds anyway. But we wanted to act on the way we were raising funds to have much more responsible investors.
Yeah, that makes sense. A lot.
Iskra I have a follow-up question. Does this mindset of wanting more responsible investors impact how you choose projects or make decisions on where to allocate money or which cities or countries to partner with?
Now this is separated. We usually work with borrowers because, remember, these are loans, not grants. So we still need someone who says, "Yes, I want to borrow from you." We work on the project side and need to find the niche between what the borrower wants and what can be attractive to us. If the borrower wants something that is not worth it to us or is not part of our mandate, we will not finance it. For example, if we finance houses, we understand that sometimes we cannot finance housing for very low-income people; we go to median income because we want a mixture in the neighborhood. But then we make sure that some of the policies or the percentage that we want goes to whoever else. When we have an agreement, we also look at how we fund all of this, but the two are separate. We mostly work on what we want. For example, last year we said that working on migrants was a priority for us. Then we had a number of countries, notably Poland, that wanted to borrow from us because they had the problem of taking care of Ukrainian refugees in their country. Since we had a package of this request, we said, "Okay, let's go to the market and see if we can issue 1 billion in bonds." There is always someone in the market willing to finance 1 billion for migrants, but we had already identified our project.
And it makes a lot of sense. I think someone interrupted you and asked the questions. If you have anything to ask.
Can you remember a situation where either in your capacity now but also in your previous jobs? You actually said no to donors? Like can you imagine refusing money from somewhere and someone and if so, why would that be the reason?
As institutions, have we refused money? Yes, but mostly we refuse money when there is an assumption of corruption. One of the biggest problems we encounter is corruption, both at the government level and during project implementation. This is a reality on the ground. So, are we completely immune from corruption? No, we cannot be naive. Do you think that some of our funds will be used in a way that we would not like? There is a high risk of that, but we try to mitigate it as much as we can. Sometimes, when a project is agreed upon and is about to start, unexpected issues arise and we need to stop until the situation is resolved.
I have another question regarding my lack of knowledge and investigation, which also pertains to your website. I apologise for not being an expert in this field. I would like to clarify whether organisations of a certain size or even normal everyday citizens can buy your bonds. Thank you in advance.
Ah, well, it depends on two different things on this side of how we finance ourselves. So far, in the institutions where I work, the investors are big investors, those who like to buy a large amount. However, this is peculiar to this institution. If you were interested in buying bonds from the World Bank, you, as Simona, would do it. You don't buy directly from the World Bank, but you will buy through your bank. The World Bank will give the mandate to some banks to play staples. It's interesting. Oh, no, not all citizens can access bonds of multilateral ministries. Not all, but I'm giving you an example.
Interesting. You also mentioned education a couple of times. If you had the resources to design a school for creating more impact, how would you do it? What is currently missing in terms of educating people with funds who could potentially unlock more resources? How can they better understand the importance of education?
For them to pay for the school or how the school should be
then another school should be what should the school teach?
Again, I think that the best page is a page that says this is the right school that I place. There is no a school, and then…
I am sorry, I didn't explain myself clearly. Perhaps you can help me. Let's say that the missing piece for the community of investors, including potential investors who are not investing now, is education in the field. My question is, what kind of education is needed? What do people need to better understand why we finance impact and how it can make a difference? I realize this may be a bit of a strange question, so please let me know if I need to clarify further.
That is a general Teacher Education. Why should you? Why should you finance education? Yeah, so this is more abstract. I think that's, I would rather go a step below global. I mean, you should invest in education in general because it is so beneficial. It creates human capital, job opportunities, and social cohesion, and can even reduce migration and increase skilled labor. We have heard all these types of things. You should show why the school you are proposing will be transformative for that specific place. My general messages have been heard a lot and many institutions are working on education funds, like Bill Gates' activities for education. But the real thing for me is to show that what you are proposing is the right thing for the right place. It should be a much more tailored message. If you want to attract an investor, you will not attract them for just one school. The motto or message could be "We are standing, you're arriving at the right place." Then it could be, as I say, a school where the facility for the kids to sleep or the facility where to have a meal or to have Mother's Day, I don't know. But each case will be different. The thing is, it's the right thing in the right place. This, for me, will be a strong pitch more than the general pitch of "How good is education?" And honestly, I mean all these things also about super digital indications. We will bring computers. I've seen a lot of these projects fail. You bring computers, but then you don't have connections. I don't want to say that we don't have to digitalize it. Or you shouldn't be naive to think that digitalization is the silver bullet to solve all the problems.
With all your experience and knowledge, and with our goal of creating more impact in the world, if you had one magic wand to do something that is absolutely needed in your field, what would it be? If you could just say, "I want to solve that problem," or "I want to remove that barrier," what would you use the magic wand for?
When I heard that education was the solution to that problem, I was sold. I am a firm believer in the power of education, and I think it should be accessible to everyone. However, it's important to note that education alone is not enough. People also need to be well-fed and nourished in order to learn effectively. In this sense, providing access to education is the best way to give people a chance in the world.
Iskra Please go ahead. I have a question regarding your discussion on centralized versus decentralized governments. You mentioned that more centralized governments require more organizational support to get things done on the ground. I'm curious if this support has ever led to a change in how the government operates. Have they learned from these examples and made changes to make future work easier and more impactful?
I think so, but I cannot give you specific examples. However, when I worked with my project team at other institutions, it was clear that if the project went well and both parties were satisfied with the RFP, which includes the government and the institutions financing it, then these pilot projects could be scaled up and resources could increase. Starting with pilots is a way to involve the community and increase learning. If the pilots are successful, then they can be scaled up and reproduced. Doing a big project makes it much more difficult to involve the community. In the past 10-15 years, there has been a shift towards developing these pilot projects instead of one big project with money given to the government without any follow-up. Empires have thrived and replicated by scaling up these pilot projects. These are not new words anymore, but they have become more common in the last 10-15 years.
Often, we hear the terms prototyping and piloting used to describe a move away from the idea of giving a large sum of money to a big project for many years. Instead, the focus is on smaller, decentralized, duplicable, and replicable experiments that are implemented and learned from each time.
We need to be experimental, for example, again, I've seen now in this case, I've seen the amazing transformation of technology helping in many projects, such as agriculture in Bangladesh or India. This helps farmers know the weather and market conditions through technology, or the fact that they have access to digital technology to access their bank accounts, which has made real transformations. So while I said that technology and digital solutions are not the panacea, I recognize that in some cases they can bring extraordinary results. But again, you should use the right thing in the right place.
Iskra Thank you so much. This was super helpful. And sorry, we went a bit over time.
Iskra There’s a lot to digest but maybe we can follow up at a later time if we have other questions.
It appears to me that we have these candidates, and if we talk about ourselves, we can see that we have the potential. However, the final decision is speculative. Our job is to creatively think about new tools, directions, and support for impact-driven projects. Many projects focus on giving funds to communities, but there may be a lack of community building on the donation side. I wonder if bringing together impact investors who donate money or even those who have not yet donated but are interested in giving capital would help unlock more funds. Perhaps building a community around sharing experiences, understanding the big picture, and discussing good examples could be beneficial. I am just speculating at this point.
Importantly, who are your audience? Are you talking about investors? It's a completely different community. Donors are happy to give their money, and they are happy when their money is used. Investors, on the other hand, want a return. It's a different ballgame and a different total counterpart, you know.