Today, on the sidelines of UNGA week in NYC, Convergence has launched the State of Blended Finance 2018, the second edition of our keystone report first published in 2017. The report uses Convergence data and insights to provide an updated analysis of the blended finance market, including impact, blending approaching, sectors and regions. Many exciting developments have taken place in the blended finance market since our inaugural report was released in July 2017, here are a few highlights:
1. The use of blended finance is growing.
Convergence now estimates that more than $100 billion has been mobilized by blended finance to date – almost double our estimate from last year, and we are confident that this is still a conservative estimate. As of August 2018, Convergence’s database captured over 2,500 financial commitments to over 300 blended finance transactions. Sub-Saharan Africa is still the most common target region, representing 42% of blended finance deals, and blended finance deals have primarily focused on financial services and infrastructure (together, 62% of all deals).
2. Blended finance has entered the “mainstream”.
This year we’ve seen the UN, OECD, G7, and Group of Twenty (G20), donors, DFIs, and MDBs articulate meaningful, positive positions on blended finance. It has also been a key theme in global conferences, made news headlines, and found its way into international development policy and strategies. Blended finance has also demonstrated itself to be an important instrument for addressing the SDGs, with growing momentum around Goal 7 (Clean Energy), Goal 13 (Climate Finance), Goal 6 (Water and Sanitation), and Goal 5 (Gender Equity). We are also seeing growing coordination from practitioners across the blended finance market, leading to improved scale in existing approaches and solutions.
3. Growing interest and engagement from the private sector to support the Global Goals.
While we are seeing some limited participation from private investors, there still exists a gap in investment opportunities for mobilizing institutional investors at scale. To engage private investors, blended finance structures should focus on producing capital market instruments that are aligned to their investment requirements and preferences, such as investment grade debt. Nonetheless, there is growing momentum for blended finance and positive signals from the capital markets, with Allianz becoming the first large commercial lender to commit long-term funding to a blended, Africa-focused infrastructure fund.
4. Need for early-stage design funding.
There is a continued need for early-stage concessional funding. While the most commonly deployed blended finance structures make use of later-stage concessional capital and technical assistance funds, representing 46% and 42% of all deals respectively, only 15% of blended finance deals have received design-stage funding. Early-stage concessional capital is critical to offset the high costs required to structure and launch blended finance deals, as well as to support innovative businesses and projects, which may be only able to attract commercial financing in the medium- to long- term. Efforts like Rockefeller’s Zero Gap initiative have proven to be catalytic and successful in mobilizing private sector finance, but more early-stage capital is needed.
5. Blended finance needs a global vision.
While blended finance is entering the mainstream, it faces a critical juncture. Healthy skepticism still exists. Policymakers and traditional grant-making agencies question both the effectiveness and opportunity cost of blended finance. Certainly, blended finance is not a panacea for the substantial gap in financing required to achieve the SDGs by 2030. A global vision for blended finance is needed to (i) accelerate the evolution from fragmented activities to a common blended finance agenda, (ii) promote collaboration and investment in successful blended finance approaches that have the potential to reach the scale required to achieve the SDGs, (iii) increase knowledge and data sharing and transparency and (iv) demonstrate development impact.
Read the report here and tune in for State of Blended Finance 2018 Webinar on September 26, 2018.
In collaboration with Justice Johnston, former Manager at Convergence