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21 August, 2019

The state of impact metrics in blended finance

The state of impact metrics in blended finance

This blog post is part of a new series that will look at the impact of blended finance, including key opportunities and challenges for achieving, measuring, and disclosing the impact of blended finance transactions. Go to the bottom of the page for other blogs from the series.

As blended finance becomes more prevalent, it’s critical that more common metrics are adopted for measuring the efficiency and effectiveness of blended finance. Metrics are important: they allow project designers to focus on those activities that contribute to their development objective and can enable comparisons to be made between activities and over time. Ultimately, having a set of common metrics will lead to better informed decisions about where and how to deploy blended finance resources.

Common metrics in blended finance

Recently, Convergence has been collecting data and information on impact measurement in blended finance, including the types of metrics that are used.

Unsurprisingly, our research found that “total beneficiaries served” and “number of jobs created” are by far the most common metrics used to measure the impact of blended finance transactions, irrespective of sector or SDG alignment. Climate-related metrics, particularly “amount of C02/GHG emissions avoided”, are also widely measured, even among blended finance transactions that are not focused on renewable energy or climate action. These types of sector-agnostic metrics are measurable (i.e., straightforward to capture from a collection standpoint) and comparable (i.e., represent a good base for identifying trends across multiple projects).

The vast majority of metrics used in blended finance transactions are specific to the activity or set of activities financed. Metrics vary significantly between sectors, but also within sectors according to the specific focus. The below table outlines the metrics most frequently used in blended finance transactions by sector. In the table we can see the prominence of both common metrics as well as sector- or activity-specific metrics. For example, in the agriculture sector, a common metric is “total beneficiaries served”, while sector-specific metrics include “number of smallholders supported” and “amount of land protected / rehabilitated”.

Blended finance impact metrics

One trend that we observed is the reliance on output metrics (i.e., the activity’s product; e.g., people vaccinated), relative to outcome metrics (i.e., the activity’s effect; e.g., reduced incident of X disease). Admittedly, it can be more challenging to measure outcome metrics than output metrics. For example, it is easier to measure the number of megawatts installed in a solar farm than to measure the improvement in livelihoods achieved as a result of greater access to electricity.

At the end of the day, the most useful metrics are those that reflect an organization’s impact mandate and goals. For example, the objective of the Media Development Investment Fund (MDIF) is “to provide the news, information, and debate that people need to build free and thriving societies.” To measure its ultimate impact, MDIF collects metrics on the accountability and corruption of elected officials, societal progress on social issues, and the freedom and fairness of elections. (Read our case study for more.)

Blended finance metrics?

As outlined in our introduction to the impact blog series, blended finance creates impact, broadly, on two levels. There is the impact of the development activities financed by the structure, and also the impact of deploying a blended finance approach. Above, we looked at the types of metrics used to measure the impact of the underlying activities of blended finance vehicles. What about metrics that specifically measure the impact of blended finance?

Key metrics for measuring the effectiveness and efficiency of a blended finance approach are mobilization and additionality. We identified multiple blended finance transactions that capture metrics like “total amount of finance mobilized” or “additional private sector capital unlocked”. In select cases, these metrics are reported in relative terms – the ratio of commercial capital to concessional capital, which is often called the leverage ratio. While mobilization and leverage metrics are valuable for building the evidence base around the efficiency of blended finance, these metrics are still under-measured and infrequently reported.

Beyond mobilization and leverage, there are also additional metrics that can be used to measure the effectiveness of blended finance, including the sustainability of the vehicle (e.g., operational self-sufficiency) and the replication effect, as the private sector becomes more comfortable with investing in similar countries and projects. Other blended finance transactions may also seek to measure any negative impacts of blended finance, like market distortion.

Looking ahead

The selection of specific metrics to be measured by a blended finance vehicle is important, and must be tailored to the specific development activities financed. These metrics serve a variety of purposes and stakeholders within blended finance. As development finance attracts a more diverse set of financiers, these impact- and commercially-oriented investors are looking for frameworks to understand the relative merits of investment opportunities in developing countries. In this way, impact metrics are key to ensuring accountability and learning. They help account for the impact of a specific transaction and reduce the risk of ‘impact-washing’ projects.

By Gibran Haque, Data & Intelligence Intern at Convergence.

Other blogs from our impact series:

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