Last week the OECD launched their Survey on Blended Finance Funds and Facilities in collaboration with Convergence. It presents findings from the OECD’s 2018 survey on the management, capital structure, and investment strategy of donor government-driven blended finance funds and facilities. In addition to providing input on the survey, Convergence provided data and analysis to complement the survey data. By partnering with Convergence, the survey aggregates two of the largest datasets on blended finance.
Contrasting datasets serving the same purpose
The Convergence and OECD datasets are importantly different, capturing distinct segments of blended finance activities according to their mandates and collection methods. The OECD tracks information on collective investment vehicles, including single-tier funds, structured funds, and blending facilities. In contrast, Convergence collects information on a wider set of vehicles (e.g., bonds / notes and projects) and approaches (e.g., the blending of philanthropic and private capital), but focuses only on those transactions where concessional capital was used to mobilize additional private sector capital.
This joint effort between the OECD and Convergence represents a major step forward to consolidate evidence on blended finance. Convergence and the OECD are strongly aligned on the need for more data on when, where, and how blended finance has been deployed efficiently and effectively. By working together, the OECD and Convergence are able to gather a more comprehensive picture of the current market size and trends, cross-analyzing the OECD survey results with Convergence’s database.
Top five takeaways from the report
The new evidence laid out in the OECD report both confirms trends previously observed on the broader blended finance market (e.g., the concentration of blended finance in certain industries like energy and banking) and sheds light on additional aspects (e.g., the role of structured funds). Here are five key takeaways from Convergence’s perspective:
1. Blended finance funds and facilities represent a relatively small, but growing part of the development finance market. In the 10 years spanning 2008 to 2017, the OECD has identified the establishment of more than 195 blended finance funds and facilities, while Convergence has identified more than 284 blended finance funds, companies, and projects. At the end of 2017, the 180 OECD survey respondents represented $41.9 billion in concessional development finance. Still, the approximate value of annual blended finance activities is only a small fraction of annual development finance from donor governments.
2. How concessional capital is introduced into a fund structure appears to determine how much capital it mobilizes. On a percentage basis, structured funds mobilized more commercial capital (at the fund level) compared with “flat funds” (i.e., funds where public and private capital are pari passu). Structured funds are also more likely to reach a size of $100 million or greater, as opposed to flat funds.
3. Multilateral development banks (MDBs) and development finance institutions (DFIs) are central to blended finance funds and facilities. Over half of the facilities (57% by count) surveyed by OECD are managed by DFIs. While MDBs and DFIs manage only a small number of funds (7% by count), the amounts managed are on average much greater, signalling their ability to pool larger amounts of capital. Convergence notes that MDBs and DFIs also represent a significant portion of the capital pooled in blended finance funds and facilities.
4. Newer blended finance funds and facilities are more aligned with the Sustainable Development Goals (SDGs). According to the OECD survey, each blended finance vehicle targets seven SDGs, on average, as part of its investment thesis (while Convergence finds alignment with an average of four SDGs excluding Goal 17). The most common SDGs across both the OECD and Convergence datasets are: Goal 1 (No Poverty), Goal 8 (Decent Work and Economic Growth), and Goal 13 (Climate Action). Notably, the OECD found that blended finance funds and facilities dealing with health, education, and gender equality experienced a relative rise in interest since the last OECD survey in 2017.
5. There is room for greater focus on the development of local capital. Most funds and facilities are supporting local small- and medium-sized enterprises (SMEs); however, only 27% of the surveyed facilities reported having some portion of their portfolio in local currency. Supporting local financial institutions is another way to develop local capital markets. The OECD finds that one in two funds and facilities provides financing to financial institutions, although facilities are more likely to invest in international and regional financial institutions, while funds more often support national and local institutions.
By Justice Johnston, former Manager at Convergence