America’s Development Bank Needs to Bet Big

Congress has a packed agenda this fall—from keeping the government open to battles over judicial nominees. One of its top priorities should be the reform and reauthorization of America’s development bank, the International Development Finance Corporation (DFC). To bet big on the industries of the future—including semiconductors, geothermal energy, and AI infrastructure—America needs a DFC that is faster, bolder, and more willing to take risks. With the agency set to expire in October, Congress has the opportunity to act with urgency and ambition. 

A Reformed DFC Could Boost U.S. Industrial Power

The DFC was created in 2019 following the bipartisan passage of the BUILD Act. It was established to counter China’s Belt and Road Initiative (BRI), which Beijing has used to expand its influence and undermine American interests through infrastructure investments worldwide. The DFC merges the Overseas Private Investment Corporation (OPIC) and the U.S. Agency for International Development’s Development Credit Authority, leveraging financial tools such as loans, equity investments, and political risk insurance to mobilize private capital in global markets. It aims to offer countries around the world a better option than China does, allowing them to avoid the unsustainable debt and predation of the BRI.

The DFC’s role as an alternative to BRI financing is well established. But it can do more. Since the DFC has a dual mandate of development and foreign policy, it can invest in projects that grow developing economies while also advancing U.S. interests—including U.S. industrial strategy. It has already been doing this to some degree. For example, it has financed critical minerals projects that feed U.S. battery production, solar manufacturing using U.S. technologies, and biotechnology partnerships that advance American innovation abroad. Its portfolio is impressive and growing given the agency’s size and age, nearing $50 billion at the end of 2024. This makes it an industrial tool with enormous potential.

 But there are real impediments to maximizing the DFC’s impact. The agency is hampered by outdated rules, legacy processes, and institutional caution. It defaults to a demand-driven dealmaking model, where projects originate from firms approaching the DFC rather than proactively sourced deals based on U.S. priorities. Risk-aversion shapes the DFC’s operating culture. This manifests in excessive due diligence requirements, shifting political directives, and litigation fears that lead to long timelines and uncertainty. The result signals hesitation, at a moment that calls for conviction and action.

Congress could address these challenges. The Trump administration and Congress are actively debating critical changes to the agency, including clarifying how equity investments should be treated, raising the agency’s $60 billion portfolio cap to $250 billion, and easing country access restrictions. Congress could make additional reforms to enable the DFC to embrace risk and innovation without compromising transparency or integrity. 

Modernizing Due Diligence 

The DFC adheres to robust environmental, social, and labor standards, aligned with the International Finance Corporation, in addition to extensive financial reviews to prevent fraud and misconduct. These requirements play a vital role in ensuring the United States provides superior alternatives to Chinese financing.

However, implementation can be duplicative, inflexible, and at times counterproductive. Fear of litigation against the DFC in U.S. federal courts and outdated provisions of law have resulted in a culture of caution beyond these requirements. For instance, the DFC must meet both project-level and country-level labor requirements tied to the U.S. Generalized System of Preferences (GSP)—a law that lapsed five years ago with no prospect of renewal. Countries that lost GSP benefits are barred from DFC financing without a clear path for requalification, regardless of current labor conditions or whether the project itself would advance labor rights. 

Congress could empower the DFC to move quickly and transparently. For instance, it could enact a statutory “safe harbor” clause, protecting the DFC and its personnel from liability when they follow due diligence policies and procedures in good faith. Congress could also eliminate the outdated country-level labor requirement while retaining the DFC’s rigorous and transparent project-specific labor standards. These changes would expedite approvals, while maintaining U.S. credibility as a high-standard lender.

Enhancing Financial Innovation

To maximize the DFC’s financial toolkit, Congress should focus on three areas: equity and political risk insurance, sovereign lending, and riskier debt.

First, two of the DFC’s most powerful tools—equity and political risk insurance—are constrained because of their treatment in the federal budget. Specifically, equity investments are accounted as dollar-for-dollar grants, ignoring their likelihood of financial returns. Political risk insurance is treated as a guaranteed loss to the federal government, limiting the amount of insurance available and hindering private investment in key markets.

 Congress is considering equity proposals such as a revolving fund or valuing equity based on expected net costs. Fixing equity is critical in enabling the DFC to make more substantial, early investments in strategic sectors abroad that could create downstream demand for American exports. Congress could also reclassify political risk insurance as a contingent liability, better reflecting the true risk of a project, maximizing the impact of limited budgets, and maintaining consistency with how political risk insurance was scored at OPIC. 

Second, in strategic projects like fiber-optic grids, national data centers, and critical minerals processing, state actors are often essential counterparts. The BUILD Act prohibits the DFC from lending to sovereigns, as the agency’s purpose is to catalyze private investment. This restriction is misaligned with the investment landscape. Recognizing this would be a significant shift in the DFC’s mandate, Congress could pilot a sovereign lending program subject to national interest determinations. 

Third, although the BUILD Act permits the DFC to issue subordinated debt, it requires a “substantive policy rationale.” This leads to its underutilization and reinforces the DFC’s culture of risk-aversion. Congress could strike this qualifier, enabling the DFC to absorb greater risk and crowd in private capital at greater scale.

Expanding the DFC’s Reach

The DFC is authorized to operate in lower and lower-middle income countries, as defined by the World Bank, and can invest in upper-middle-income countries only through a cumbersome certification process. This process is extremely slow, politicized, and at times divorced from strategic or developmental logic. National income classifications can be heavily skewed by elites, which means that countries with deep inequality—such as Guatemala—may appear too wealthy on paper to qualify.

Recognizing this, former national security adviser Jake Sullivan proposed shifting to the World Bank’s “country of operation” model, which captures a broader set of factors. In draft legislation last year, the House Foreign Affairs Committee retained the certification requirement for upper-middle-income countries and enabled investment in high-income countries with significant restrictions. But imposing another rigid framework would repeat past mistakes, recreating the bottlenecks that have stymied the DFC’s strategic impact.

Instead, Congress could lift statutory restrictions on country access and empower the DFC to operate wherever projects meet foreign policy and development criteria, retaining robust oversight through the notification and appropriations process. Freeing up the DFC to work in high-income countries could have the added benefit of cross-subsidizing investments in less developed countries. If lawmakers prefer a more gradual approach, they could eliminate limitations on upper-middle-income countries and allow investments in high-income countries with a national interest waiver.

Making the DFC Permanent

The most crucial step Congress can take is to strike DFC’s termination clause and make the agency permanent. Unlike its peer development finance institutions in China, Japan, South Korea, Canada, the UK, and Germany, the DFC is a temporary agency requiring renewal. This alone signals to global competitors and private investors that the United States may be unreliable over the long term. It undermines planning, weakens credibility, and deters firms from making longer-term bets with the U.S. government, including in capital intensive sectors like semiconductors, energy, and compute infrastructure. That the agency is just two months away from expiration underscores this point. An agency intended to drive investment, compete with China, and shape the future is not a temporary requirement. Permanence is vital for impact. 

Through the DFC’s reauthorization, Congress has an opportunity to embolden a critical tool of American power, innovation, and leadership. Failure to act risks America’s global edge in the industries of the future.