Reauthorizing DFC: A Primer for Policymakers

In 2018, Congress passed the Better Utilization of Investments Leading to Development Act (BUILD Act), which combined the Overseas Private Investment Corporation (OPIC) with several U.S. Agency for International Development (USAID) offices and credit authorities to form the U.S. International Development Finance Corporation (DFC). The Donald Trump administration is now again considering combining the United States’ international development and investment programs across multiple government agencies in an effort to focus their efforts more directly on competition with China. DFC is the United States’ primary instrument of foreign financing, or affirmative economic statecraft, and is increasingly critical to advancing the nation’s international development objectives, given the recent dismantlement of USAID.

In the coming weeks and months, Congress will choose whether or not to reauthorize DFC prior to the expiration of its authorities on October 6, 2025. If Congress does decide to extend DFC’s authorities, it will need to work closely with the executive branch to address a variety of structural modifications to DFC’s authorizing statute to improve the agency’s ongoing operations—and potentially, as proposed by the second Trump administration, combine multiple existing federal agencies.

Although the destruction of USAID has thrown U.S. development finance into a state of painful disarray—leaving a major gap in U.S. foreign policy that the United States’ adversaries will seek to exploit—the reauthorization of DFC has the potential to effectively reimagine and revitalize U.S. strategic investment and development finance efforts in the twenty-first century. Congress and the executive branch should take this opportunity to do improve the structure, increase the scale, and expand the capacity of the DFC as the preeminent U.S. instrument of “affirmative” economic statecraft.

A Bipartisan Innovation

With seventeen cosponsors in the Senate and forty-four in the House, the BUILD Act was a deeply bipartisan product of the first Trump administration—one that emphasized the importance of mobilizing private capital and capabilities to drive economic growth in less-developed countries through publicly furnished financial products such as political risk insurance, loan guarantees, direct loans, and equity financing. With $50 billion invested across 114 countries since its formation, DFC’s rapid growth and global successes across the Joe Biden and Trump administrations speak for themselves. (See figure 1.)

But the BUILD Act also embedded tensions in the DNA of DFC’s mission and operations, including direction to

• operate as both a traditional “on-budget” U.S. government agency and as a quasi-independent corporation; and

• simultaneously “complement the development assistance objectives” and “advance the foreign policy interests” of the United States.

Those dual, and occasionally dueling, mandates seek to create an entity capable of acting both as an independent investment bank for U.S. national security projects and a classically understood international development finance institution, subject to regular order and oversight from the Office of Management and Budget (OMB), the Congressional Budget Office (CBO), the General Services Administration (GSA), and Government Accountability Office (GAO).

The tensions those statutory mandates created have subsequently spawned debate over both how DFC should operate (i.e., as a corporation or a government agency) and what impact it should seek to prioritize or achieve (i.e., the often-false dichotomy between development and national-security priorities). Effective development policy is good national security policy, and DFC was undoubtedly founded on the bedrock principle that the United States benefits when less-developed countries prosper. But the Biden and Trump administrations both sought to use the institution as 

• a strategic investment tool capable of ensuring the United States has a stake in companies, assets, or projects of high geoeconomic relevance around the world, such as mines, shipyards, telecommunications infrastructure, and ports; and
• a development finance institution that reliably provides high-standard development financing in less-developed economies.

Each of those objectives, as well as the cultural and legal independence of DFC from traditional federal bureaucratic rules and procedures, reflect the history of DFC’s predecessor agencies: OPIC and USAID’s Development Credit Authority. Today, DFC remains the U.S. government’s only agency with the authority and capability to invest using a wide array of financial instruments in strategic assets abroad, and underwrite, at scale, the United States’ development and foreign policy agenda outside of traditional forms of military and humanitarian assistance.

Since its inception, DFC’s global reputation as a preeminent international development finance institution has also grown, and the agency functions as an important high-quality alternative to below-market, strings-attached financing options available through authoritarian governments or their state-owned proxies. Without DFC, the United States could not offer an affirmative option for countries seeking economic partnerships that emphasize financial transparency, debt sustainability, and respect for local conditions to less-developed economies seeking to utilize or unlock growth capital.

Issues for Reauthorization

Like most major legislation that forms a new federal agency, the BUILD Act did not get everything right, and the demands placed on DFC  have shifted since its formation, particularly as strategic competition has intensified with China in the fields of  development, economics, and technology. Last summer, a bipartisan group of legislators in the House of Representatives, led by then House Foreign Affairs Committee Chair Mike McCaul (R-TX) and Ranking Member Gregory Meeks (D-NY), voted out of committee an initial proposal to reauthorize the agency.

Their bill addressed major nuts-and-bolts reauthorization issues to help modernize DFC, including the budgetary treatment of equity, country eligibility, pay issues, and other overdue administrative adjustments. But to unlock the full power of DFC, a reauthorization bill needs to address essential structural improvements and consider more radical options to adjust and expand DFC as an instrument of U.S. foreign policy and a powerful global development tool. Priorities for policymakers in Washington include the following items:

• High-Priority Fixes: the budgetary treatment of equity and country eligibility.
• Medium-Priority Structural Improvements: rethinking risk, reauthorization length, and administrative housekeeping.
• Nice-to-Have Options to Unlock Potential: pay authority for investment professionals, treatment of returns, new-fund authority, and consolidation with other agencies.

High-Priority Fixes

Fundamentally, a reauthorization process adjusts the underlying law that governs an agency’s activities. The highest priority changes made during the reauthorization process should be ones that allow the agency to invest more funds and operate more flexibly in more places while remaining aligned with its statutory mandate.

Budgetary Treatment of Equity

Today, DFC is required to treat its equity investments in private companies or projects as grants—meaning that for every dollar invested, DFC must expend another dollar of its annual discretionary appropriations. From the perspective of the OMB and the CBO, this is an appropriate treatment of DFC’s discretionary resources: those entities track funds across the entire federal government in terms of outlays—meaning how much funding moves out the coffers of the government over a given time interval—not in terms of investments that may return capital. Unfortunately, this accounting approach, while appropriate for 99 percent of government programs, also implicitly assumes that DFC will lose 100 percent of the value of an investment over that investment’s life.

Changes to the budgetary treatment of equity should mirror (though not mimic or replicate) the unique treatment afforded federal lending programs, which are governed under the Federal Credit Reform Act of 1990 (FCRA). FCRA allows the government to provide a loan using a combination of a given lending program’s annual discretionary dollars (which are in most cases “use or lose” dollars) and funds from the Treasury General Fund to meet the upfront cash requirements for the loan. The amount of discretionary dollars required to make a particular loan (i.e., the subsidy cost) is determined by a formula for assessing its riskiness. The rest of the loan’s upfront cash outlay is covered by an intragovernmental loan from the Treasury General Fund, which must be repaid with interest.

While the best practices and procedures for assessing the riskiness of a loan are completely different from those of an equity investment, the U.S. government’s equity programs similarly deserve to be treated, when appropriate, as if they will eventually return proceeds to the federal coffers. This adjustment in treatment, and corresponding adjustment in scoring by the CBO, requires standalone statutory language or “directed scoring” that amends the U.S. code adjacent to and modeled on (but ultimately separate from) FCRA. The ultimate subsidy cost–equivalent for this program should also be determined by its portfolio-level performance rather than individual investment-level risk, much like how a private equity firm might seek leverage for its fund based on past performance and the underlying riskiness of its planned basket of investments. (See figure 2.) The DFC equity program’s hurdle rate on its leverage would then be the interest rate of the intragovernmental loan from Treasury at, effectively, the risk-free rate. While CBO is likely to oppose this accounting adjustment, it is entirely appropriate to encourage the deployment of DFC’s discretionary resources through an evenly balanced mix of guarantees, loans, and equity investments.

Congress released multiple bipartisan proposals in 2024, including the House proposal to reauthorize DFC, that sought to address the budgetary treatment of equity and expand the use of equity investing programs across the government. Those proposals sought to nest the treatment of equity directly under FCRA, rather than in a separate equity-focused addition to statute. FCRA ultimately governs federal credit programs and, given the inherent differences between debt and equity instruments, it is inappropriate to simply write the treatment of equity into FCRA. Appropriators in Congress have not indicated support for any proposals on adjustments to the budgetary treatment of equity. CBO will likely oppose any adjustment and, along with appropriations staff, encourage any change in DFC’s access to resources through adjustments to the agency’s overall discretionary budget. In fact, they privately struck down NDAA amendments that extended equity authority to other agencies, citing the need to resolve this issue with DFC first to set precedent for the entire government.

Congressional appropriators and budgetary traditionalists will continue to resist proposals that decrease agencies’ dependency on the annual budget and appropriations process, such as allowing equity programs to borrow from the Treasury General Fund or the returns on equity investments to flow back to DFC for redeployment. Member-level engagement will be needed with House and Senate Appropriations Committee leadership to break this impasse.

Country Eligibility

Each year, the World Bank assigns the world’s economies to four income groups: low, lower-middle, upper, and high. DFC’s authorizing text currently requires the agency to use those categories to determine where it can do business. But, because those categories can change on an annual basis, countries on the margins of each category see less DFC activity. For example, a country that moves from upper-middle income to high income becomes immediately ineligible for DFC support, no matter how far along the agency might have been in the due-diligence process for a particular investment.

To alleviate this restrictive caution, Congress should allow DFC to align its country-eligibility requirements with World Bank lending categories, which are similar to income classifications but less volatile. This change would also eliminate a problematic dependence on gross national income (GNI) as the single determining factor of a country’s development needs. The reauthorizing text should also repeal the European Energy Security and Diversification Act of 2019, which mandates that DFC support certain energy-related investments in eligible European and Eurasian countries.

A more radical option would allow DFC to invest in any country authorized by the DFC board, while adhering to its statutory direction to focus on driving development outcomes. Today, there are nearly one hundred countries around the world where DFC cannot freely invest, leaving huge gaps in the United States’ ability to counter its adversaries international investment strategies that lack similar constraints.

The Biden administration supported expanding DFC’s ability to work in all countries in principle, with the requirement that the president certify that any investment in high- and upper-middle-income countries was consistent with DFC’s mission and U.S. interests through investments in strategic sectors such as critical minerals. The Trump administration could consider the same tactic.

Some stakeholders could also view this change as disincentivizing DFC staff from investing in low-income countries. A potential compromise could be additional statutory direction to DFC to focus on development outcomes in key programs as a way to assuage their concerns. Relying on DFC’s statutory mandate, rather than specific country categories to direct investment, also allows the agency the flexibility to respond to a quickly changing global economic environment, where the development status of a particular country or the overall impact of a particular investment could rapidly change or evolve.

Medium-Priority Structural Improvements

In addition to the vital reforms listed above, the following structural improvements are essential modifications to unlocking the full power of DFC to grow and mature into a capable instrument of U.S. economic statecraft.

Rethinking Risk

The BUILD Act’s statement of policy includes eight specific directions to DFC that set the tone of the agency’s approach to impact and investing. This explicit statutory direction asks DFC to both mobilize private capital and bridge identified market gaps using government resources in service of U.S. “development, foreign policy, and national security” objectives.

In practice, this should mean a degree of comfort in accepting junior positions in the capital stack, providing projects with first-loss capital and the clear latitude to create fit-for-purpose financial instruments that bear real financial risk. But according to current and former DFC staff, DFC has been hesitant, like most government agencies with investment authorities, to accept the necessary financial risk at either the individual investment or portfolio level to meet its objectives.

This unwillingness likely stems from the fear of misusing taxpayer resources. But in investing, some bets should fail or take losses. DFC’s cautiousness limits its ability to invest at speed, and to invest where the returns are nonmarket foreign policy goals. Further, DFC’s nearly exclusive review of investments’ financial performance at the individual, rather than the portfolio level, helps ingrain an aversion to loss in DFC’s board and investment-committee decision-making.

To alleviate this, the DFC’s reauthorization text should include additional upfront policy direction to accept higher levels of financial risk at the individual investment level while measuring financial performance at the program or portfolio level. For example, additional policy direction under “Section 1411. Statement of Policy” could be written.

Existing Policy Statements 1–8: “It is the policy of the United States to facilitate market-based private sector development and inclusive economic growth in less developed countries through the provision of credit, capital, and other financial support—

New proposed text: (9) “ . . . by taking on substantial financial risk, and when necessary financial losses, to unlock new, significant private capital investments or achieve or advance major U.S. foreign policy objectives. Losses may, in certain instances, be expected at the individual investment level and financial performance measured at the overall portfolio level.”

To achieve this objective, the reauthorization text could also explicitly authorize (albeit in a different section of the bill) the use of additional financial instruments and grantmaking activities, which has become increasingly important given the loss of USAID grants to build a pipeline of bankable projects.

However, as former U.S. Treasury official-turned-venture capitalist Josh Zoffer recently pointed out, the U.S. government lacks a unified investment strategy to accomplish its strategic aims. Instead, it employs a balkanized set of agencies that are constrained by statutory direction, budget politics, and fear of the perceived misuse of limited taxpayer resources.

DFC suffers from this well-documented dynamic. Although explicit direction to take on additional venture capital-style risk when investing could help, DFC’s congressional champions, CEO, and board members should ultimately be prepared to weather public blowback from incurring a higher rate of losses. At the same time, Congress cannot legislate cultural change. This issue is about more than statutory guidance. DFC’s leaders will need to focus on methodically leading the agency toward a new approach to risk within DFC and the agencies that support or oversee its activities.

DFC’s new CEO could initially consider measures such as staff incentives that encourage entrepreneurial risk-taking and formal processes to build coalitions in the government on unified investment strategies and best practices under the auspices of this new direction. A new government-wide investment strategy, potentially issued as an M-Memo from OMB or National Security Memorandum from the National Security Council, could also be needed.

Reauthorization Length

Congress uses term-limited authorizations to ensure it can periodically address necessary improvements to an agency and maintain oversight over its operations and direction. The BUILD Act explicitly states that the authorities it provided DFC expire seven years after the date of enactment and “the Corporation shall terminate on the date on which the portfolio of the Corporation is liquidated.”

However, the life of many current DFC loans, investments, and guarantees extend past 2050 or, as in the case of equity investments, have no explicit exit timeline. As such, regular reauthorization cycles disincentivize partnerships with DFC where the agency deploys the kinds of long-term financial instruments that it was established to provide. The workaround is straightforward: DFC should be authorized on a permanent basis.

This is, of course, easier said than done. Congress will be reluctant to give up its oversight tool and the power to forcibly reshape the agency on a regular basis. Advocates in the administration and in the private sector that utilize DFC’s financing instruments, particularly at financial intuitions, will need to demonstrate how uncertainty created by reauthorization timelines hurts DFC’s ability to execute its mission.

Administrative Housekeeping

As with all reauthorization processes, there are a variety of critical administrative issues that should be addressed or clarified in statute to allow DFC to continue to grow and thrive. An initial list of the most important include the following:

• Maximum contingent liability: The BUILD Act limited the DFC’s maximum portfolio size to $60 billion, and DFC is on track to surpass that figure in the coming years. Congress should raise this limit to $120 billion to accommodate DFC’s growth trajectory. Alternatively, Congress could eliminate this limitation altogether in favor of exercising oversight on DFC through the appropriations process.
• Congressional notification threshold: DFC must notify Congress of any investment over $10 million, effectively allowing Congress to delay, or pocket veto, transactions. As DFC grows, so should its ability to invest without notifying Congress of every transaction. Congress should raise the notification threshold to $50 million for all investments, consistent with the threshold set for debt transactions that trigger a review by DFC’s board.
• Fee authority: Each year, DFC must ask Congress for appropriations to cover diligence, monitoring, and work-out costs related to its transactions. In the private sector, those costs are typically borne by the parties involved in a transaction, and Congress should provide DFC with the permanent authority to collect fees for those purposes to align the cost of such activities with their transactions.
• Permanent FAR exemption: The intent of the BUILD Act was to make DFC a lean, fast-moving corporation akin to a private sector entity. To achieve this goal, the reauthorization needs to exempt DFC from Federal Acquisition Regulations (FAR) and other GSA contracting or leasing processes. In its best form, DFC can function with minimal administrative staff and real property on its books, spending most of its time and energy deploying capital through its programs.
• Extend the CEO term length to seven years: DFC’s CEO should be an experienced investment professional who works at the agency across presidential administrations and economic cycles. Practically, this means changing the CEO position (and all others at DFC) to board selected and approved, rather than presidentially appointed and Senate-confirmed (or otherwise politically appointed) positions.
• Eliminate the DFC board: If DFC’s CEO remains a presidentially appointed, Senate-confirmed position, then it already has sufficient statutory obligations to coordinate its activity with other departments and agencies. DFC does not function as a true private corporation or independent federal agency; as such, its board structure is an unnecessary layer of bureaucracy that calls into question the authority of DFC’s CEO as a senior administration official—in addition to limiting DFC’s ability to invest at speed and scale. Its board should therefore be eliminated.  

Many of those adjustments clarify or expand the intent of the BUILD Act. Congress, OMB, GSA, and other agencies that exercise oversight over DFC’s activities will not want to grant it special exemptions to avoid precedent-setting impacts on similar entities across the government. The strongest advocates for these changes could be the congressional committees that retain jurisdictional oversight over DFC and that originally constructed the BUILD Act.

Nice-to-Have Options to Unlock Potential

Finally, a number of reforms will be extremely difficult to push through Congress, but they are nonetheless important to unlocking the DFC’s full potential.

Pay Authority

The salaries of all DFC staff are about half of their peers at the World Bank and other international financial institutions. The difference is even starker for DFC’s investment professionals with prior deal experience, who make a quarter or less than their peers in the private sector. Without a change to the DFC’s ability to compensate talent, it is unrealistic to expect output and performance at a level the U.S. taxpayer deserves from an agency dependent on hiring people with unique, highly valued skills and abilities.

First, Congress should grant DFC the authority to compensate its investment professionals, meaning those individuals directly executing transactions and with prior private-sector dealmaking experience, up to 100 percent above the GS-scale at levels comparable to peer international financial institutions. The reauthorization bill should also direct the Office of Personnel Management to evaluate the creation of a special category of employee for investment professionals in coordination with the Financial Industry Regulatory Authority (FINRA), which is likely the deepest source of U.S. government expertise on what definitionally constitutes investment experience.

Second, DFC requires additional administratively determined positions that allow the agency to attract and retain supporting talent including transaction lawyers, economists, and technical assistance specialists. The reauthorization bill could also direct the creation of a detailee program with U.S.-based financial institutions to augment DFC staff with additional investment professionals, as needed and appropriate.  

Previous efforts to remedy DFC’s pay scale have been limited: the House proposed expanding pay for up to 20 percent of the workforce at “more competitive rates.” Congress will likely be reluctant to allow for government employees to make higher salaries, but Trump administration officials could be amenable to arguments about the importance of increasing the compensation of investment professionals, given their unique abilities. Without this change, DFC cannot expect to retain experienced individuals capable of operating investment programs over a time horizon longer than three-to-five years. Existing employment flexibilities such as higher levels of remote work are insufficient or ineffective.

Treatment of Returns

When DFC equity investments generate returns, the proceeds flow to the Treasury General Fund, rather than back into the equity program’s accounts. To improve the incentive structure for DFC’s equity program, the program should “get carry”—meaning that after the program pays back their initial taxpayer-funded investment (plus a predefined return), a portion of the program’s profits (e.g., an industry standard 20 percent) could be revolved back into the equity program for direct reinvestment.

Past proposals to create this type of revolving structure have met resistance from appropriators, as revolving programs decrease DFC’s dependence on the regular appropriations cycle for funding. Incentivizing the program to generate returns also potentially disincentivizes investments in risky projects with higher levels of development or foreign policy impact.

New Fund Authority

DFC’s dual mandate as a strategic investment tool and critical source of development financing often pulls the agency in multiple directions. Unfortunately, the U.S. government lacks a flexible source of patient capital that it can invest abroad aligned exclusively with its strategic foreign-policy interests. As the only U.S. government agency with a broad international-investment mandate, DFC is often pressured to bend the rules and requirements of particular programs to meet the crisis of the day. DFC’s “enterprise fund authority” was intended to provide it with some flexibility to establish and operate new funds to quickly adjust course and react to those pressures, but it has never used this authority.

The reauthorization bill could simplify, clarify, and direct the regular use of a “new funds” authority to create and fund programs outside of DFC’s core development mandate, starting with an effort focused exclusively on competition with China. This updated enterprise-fund authority would allow the agency to create investment vehicles with small amounts of seed capital, perhaps up to $100 million, to pilot investment strategies in areas aligned with pressing U.S. foreign-policy problems.

If those new funds were successful, DFC could then work with Congress to appropriate additional discretionary dollars to those newly formed accounts directly. Or DFC could accept transfers of funds from other agencies—such as State, Energy, or Defense—that hope to leverage DFC’s in-house investment expertise to achieve their foreign policy objectives.

Consolidation With Other Agencies

Currently, the United States maintains a variety of small independent agencies that deploy taxpayer resources abroad to fulfill various export- or development-related mandates under the umbrella of economic statecraft. Agencies such as the U.S. Trade and Development Agency (TDA) provide funding for feasibility studies that can create bankable projects for DFC debt or equity investments, while the Export-Import Bank (ExIm) is the official U.S. export credit agency and helps develop foreign markets for U.S. exports. The Millenium Challenge Corporation’s (MCC) statutory direction to “reduce global poverty through economic growth” mirrors the DFC’s mandate. The current lack of coherence between these independent agencies’ tools and strategies can limit the impact of U.S. development efforts and the overall efficacy of the nation’s economic statecraft.

Some smaller agencies such as the TDA and MCC could be consolidated with DFC through the reauthorization process, bringing the various programs that support the development of bankable projects under one roof. That said, entities with vastly different statutory mandates and policy objectives (e.g., ExIm) could be less appropriate to absorb into DFC.

Additionally, merging any agencies with DFC through the reauthorization process will prove exceptionally difficult due to jurisdictional differences across committees in Congress and, in the case of DFC and ExIm in particular, vastly differing policy mandates.

More Than Just DFC

DFC’s reauthorization process will determine more than just whether the agency continues to exist and invest under its dual mandate to advance U.S. development and foreign policy objectives. Congress’ treatment and the CBO’s subsequent scoring of DFC’s amended programs and activities will also set a precedent in U.S. appropriations law—and subsequently policy—for how other government agencies can invest taxpayer resources through a wide variety of financial instruments from traditional grants and loans to more complex products like equity and political risk insurance.

The changes made to DFC’s financial and operational mechanics could determine the authorities available to a wide range of federal entities critical to underwriting the United States’ industrial and foreign policy agendas, including a new sovereign wealth fund, ExIm, the Department of Defense’s Office of Strategic Capital, the MCC, USAID, the State Department, the Department of Energy, and others. Congress, in coordination with the Trump administration, will need to wrestle with fundamental questions, including the following:

• Where should investment expertise live within the U.S. government?
• What is the willingness of the U.S. government to make risky bets on projects and companies that support U.S. foreign policy interests, even when those investments lose money?
• How should DFC—and the U.S. government more broadly—participate in the financial upside of its investments?
• Where do development and development financing fit within the United States’ broader strategy to advance its foreign policy and national security objectives ?