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26 Jul 17

An in-depth review and analysis of blended finance trends, activities, actors, and learnings

An in-depth review and analysis of blended finance trends, activities, actors, and learnings

The Blended Finance Breakthrough Taskforce (BFBT), Convergence, and the Business and Sustainable Development Commission (BSDC) are pleased to launch ‘The State of Blended Finance’. This report expands the evidence-base around the potential of blended finance to help close the SDG funding gap by summarizing blended finance deal trends and identifying ongoing blended finance activities of key actors.

Blended finance trends by geography and sector

Blended finance has mobilized USD 51.2 billion towards sustainable development. Geographically, sub-Saharan Africa has been the target region for the majority of blended finance transactions (40%). Asia and Latin America receive the next largest proportion of blended finance at 20% and 17%, respectively. While previous reports have argued that blended finance commonly flows to middle-income countries, low- and lower-middle income countries account for 66% of targeted flows. There is a greater level of diversity in sectoral trends, with the largest proportion of blended finance deals focused on the financial services sector, followed by clean energy and climate finance, which together account for 50% of blended finance transactions. The data also demonstrates the potential wide reach of blended finance, including in agriculture, education, and healthcare. In addition, the report provides trends analysis on volume and size of blended finance deals, investors, instruments, and development impact.

An expansion of blended finance actors and activities

The report maps ongoing blended finance activities of key actors, including aid agencies, multilateral development banks, national development finance institutions, private foundations, commercial banks and institutional investors. The report finds that there are a growing number of organizations active in blended finance. The OECD, WEF, the Sustainable Development Investment Partnership (SDIP), and Convergence are all aligning activities to scale best-practice blended finance. In addition, the OECD is in the process of establishing blended finance principles for OECD DAC members to encourage more use of best-practice blended finance by these donors. Numerous agencies within the UN are also playing an important role in advocating for more use of blended finance within international development and development finance. The World Bank Group (WBG) recently approved the International Development Association (IDA) Private Sector Window (PSW). Finally, the European Comission’s new External Investment Plan (EIP) will promote investment in developing countries, with a focus on Africa and the EU Neighbourhood.

Increasing the scale and impact of blended finance

While recent years have seen a notable expansion of blended finance activity, the report highlights several important learnings that are needed to increase the scale and impact of blended finance. First, there is a need to ensure that blended finance initiatives remain aligned and complementary and, where possible, to invest in existing solutions that have the potential to scale. Second, to attract private investors, absolute risk must be acceptable, the risk-return profile of investments must be at market prices or better, and diversification through the pooling of assets and projects across countries and sectors is required. Third, donors require better enabling conditions to participate in blended finance, including proper understanding of blended finance; the capacity to invest in blended finance transactions; and effective metrics for evaluating additionality, value-for-money, and leverage. Finally, MDBs and DFIs should allocate more capital to higher-risk activities, including targeting low-income countries, participating more in subordinated positions, and providing more risk participation products.

Read the full report

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