Fragility and conflicts prevent countries from achieving sustainable development goals. They cause a loss of lives and livelihoods, displacement of people, poverty and hunger, poor health and education services, and gender and income inequalities. Although official development assistance is the most critical source of external assistance used to support the economic recovery of fragile and conflict-affected countries (FCACs), development finance institutions (DFIs) are also increasingly committed to investing in fragile contexts. However, DFI operations are still more concentrated in politically stable middle-income countries, with minimal investments directed towards FCACs.

This paper looks at how development finance institutions engage in fragile and conflict-affected countries. It gives an overview of the structural features of FCACs and DFIs, zooms in on the main DFIs investing in FCACs and discusses the challenges DFIs face. We make a number of recommendations for development finance institutions on how to increase their investments in fragile and conflict-affected countries. For instance, they could take on specific mandates in FCACs, adopt conflict-sensitivity strategies, strengthen the use of blended finance approaches, exploit the potential of financial intermediaries, embrace the first-mover advantage, and support the building and rebuilding of markets.

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