Over the past decade, development finance has delivered tangible results: businesses have grown, infrastructure has expanded and millions of people have gained access to essential services. Yet in many countries, these gains have not translated into markets that function effectively at scale. Financial systems remain shallow, infrastructure gaps persist and private investment continues to concentrate in a limited set of opportunities, resulting in consequences for governments, businesses, and households alike.

British International Investment’s (BII) new 2026–31 strategy responds to this challenge by placing market-level impact at the centre of its approach, focusing on how whole systems work, not just individual deals. It comes at a time of tighter UK public finances, accelerating climate impacts and widening development gaps. The strategy reflects a growing recognition that development finance needs to focus not only on deploying capital, but on the conditions that allow markets to function and endure.

The overall direction is a positive one. The challenge now lies in delivery. Market building requires a different set of disciplines from transaction focused investing. The test of the strategy will be whether it leads to markets that operate more effectively over time, including after anchor investors reduce their involvement.

What this shift looks like in practice—and where it could succeed or fall short—depends on three things.

First, clarity on the market failures being addressed; second, the ability to combine capital with non-financial interventions, and finally, sustained engagement over time. Experience, including Palladium’s work across blended finance facilities, investment platforms and market development programmes, suggests that delivering these outcomes requires sustained engagement beyond individual transactions.

One of the most significant aspects of the strategy is how it frames market level impact. BII describes this as investments that lead to changes in behaviour, competition and market structure, rather than focusing solely on the outcomes of individual deals. This shifts attention towards what happens in the market as a result of an investment, rather than treating the investment itself as the primary unit of success.

Experience suggests that these outcomes rarely emerge automatically – and that investments designed without a clear theory of market change often deliver strong project-level results while leaving underlying market constraints unchanged. Market level change depends on clear assumptions about what needs to shift, whose behaviour matters, and how incentives are likely to respond.

In practice, this means combining capital with non financial interventions that address uncertainty, coordination failures or regulatory constraints. Market impact therefore becomes something that is designed and delivered throughout the investment process, rather than assessed retrospectively. Through programmes such as Partnerships for Forests, we have seen how combining early-stage capital with technical support can move sectors from isolated transactions to investable pipelines, attracting new investors over time.

Pathways to Market Building

The strategy’s description of what market building involves is helpful in this regard. BII sets out three pathways: enabling growth, pioneering markets and deepening capital markets. Each reflects a different way in which development finance can contribute to market development, and each comes with distinct delivery requirements that matter for policymakers, investors, and implementers alike.

Enabling growth often focuses on infrastructure and basic services such as power, transport, finance and connectivity, where bottlenecks constrain broader economic activity. In these contexts, the issue is rarely capital alone. The challenge is often less about financing infrastructure and more about aligning regulation, pricing and institutional incentives to make systems sustainable.

A good example here is UK PACT. The programme provides support on regulatory reform and pipeline development to help reduce investor uncertainty and unlock flows of capital into renewable energy. It illustrates how market enabling conditions are often as critical as financing itself.

Pioneering markets involves supporting new business models, increasing competition and improving quality in sectors where private investment has been limited. The risk is that early successes remain isolated unless activity replicated and supported by wider ecosystem change. Through initiatives such as Mobilist, we have seen how support for first-of-their-kind transactions can open new routes for capital into frontier markets, helping demonstrate investability and catalyse broader market participation.

Deepening capital markets is concerned with demonstrating investability, building pipelines and lowering barriers for new investors. Progress depends on building pipelines and institutions simultaneously, rather than assuming capital will follow demonstration effects.

Across these pathways, the strategy recognises the importance of tools beyond capital, including market intelligence, regulatory engagement, standards and governance, with BII Plus positioned as a core part of delivery rather than a supporting function.

The strategy also acknowledges that markets differ in meaningful ways. Frontier markets are characterised by thinner pipelines, higher uncertainty and slower, less predictable progress. Market building in these contexts often involves work on governance, sector coordination and regulatory clarity in order to build confidence over time. In emerging markets, efforts are more likely to focus on scaling pipelines and attracting a broader range of investors. The commitment to deploy around a quarter of new core investments in frontier markets reflects an ambition that will require patience and careful sequencing.

The mobilisation targets set out in the strategy are substantial. The longer-term test, however, is what happens next. A useful indicator of success will be whether new investors continue to enter, local institutions take on a greater role, and investment activity persists beyond the presence of anchor capital.

Cross Cutting Priorities

Similar considerations apply to climate and inclusion. BII already integrates climate resilience, and gender and inclusion into its investment processes and portfolio objectives. A further step is to ensure these priorities influence how markets are structured, including the rules, incentives and norms that shape participation. While this approach can take longer to establish, it has the potential to reduce the risk of exclusion and vulnerability becoming embedded as markets grow.

The emphasis on market infrastructure is therefore an important part of the strategy. Treating BII Plus as integral to delivery highlights the role of technical assistance, policy engagement and learning as enabling factors for effective investment. When these elements are coordinated before and after investment, they can increase the likelihood that capital contributes to lasting market change.

Taken together, BII’s strategy sets out a coherent and timely direction for UK development finance. The opportunity now is to translate this into consistent delivery - by designing investments with a clear view of how markets need to evolve and sustaining the interventions required for those changes to take hold long after public capital steps back.