Figure 1: Percentage of deals associated with a Technical Assistance Facility (TAF)
Technical assistance is a versatile and widely-applicable tool that can mobilize additional commercial capital for the Sustainable Development Goals (SDGs) by reducing the risk profile of investments in developing countries and bolstering both the social and financial return. Technical assistance grants have been frequently deployed alongside commercial investments in blended finance transactions to support a range of activities, including project preparation, project implementation, or the broader business environment (e.g improving the legal environment).
In our most recent Data Brief on blending with technical assistance, we found that one-third (34%) of blended finance transactions have an associated technical assistance facility, which is defined as a dedicated pool of resources that is complementary to SDG-related investments in a deal. The Brief also found that blended finance vehicles have leveraged technical assistance facilities primarily post-investment (53%) to bolster impact, including through integrating ESG reporting standards and providing training and capacity-building to investees. Technical assistance has also been deployed pre-investment (28%) for building a pipeline of investment-ready projects (e.g. PACE Investment Readiness Program), as well as to subsidize investment costs (17%) or support the enabling environment (2%).
Low-income countries have received the most technical assistance
In addition to offering direct benefits to projects, investees, and investors, technical assistance can play an important role in strengthening markets by building the capacity of local stakeholders and broadly supporting the local enabling environment. The Brief finds that more than half (52%) of blended finance transactions that target one or more low-income countries have an associated technical assistance facility– the highest proportion across country income levels. Regionally, the majority of technical assistance funds deployed alongside blended finance transactions have targeted the Middle East and North Africa (53% of blended finance transactions targeting Middle East and North Africa) as well as Sub-Saharan Africa (38% of blended finance transactions targeting Sub-Saharan Africa).
Figure 2: Proportion of deals by region
Funding for technical assistance facilities most commonly provided through public sector
The Brief also observes that funding for technical assistance facilities has been most commonly provided by the public sector. Development agencies, development finance institutions (DFIs), and multilateral development banks (MDBs) have accounted for 79% of technical assistance grants provided to blended finance transactions. In particular, USAID, the Multilateral Investment Fund (MIF), PROPARCO, and the International Finance Corporation (IFC) ¬have been the most frequent providers of technical assistance funds. In contrast, impact investors (6%) and commercial investors (5%) have been the least likely to provide technical assistance funds.
Figure 3: Top TA providers by investor type and investor
More dialogue around the use of technical assistance in blended finance is needed
As we move towards blended finance 2.0, there is a need for improved coordination and standard setting for technical assistance linked to blended finance. We need to determine where and how these funds can be used most effectively and efficiently to mobilize additional sources of finance for the SDGs and maximize development impact. We hope this Brief will be a starting point for greater dialogue around the use of technical assistance alongside commercial investments in blended finance transactions.
This Brief is part of our data-driven series for our members that is focused on blended finance benchmarks. Each month, Convergence will publish a Data Brief to promote the sharing of actionable data and learning among the blended finance community. Our next Brief will focus on blended finance and gender.