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09 Jul 19

Blended finance 2.0 must address transparency and accountability

Blended finance 2.0 must address transparency and accountability

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 in the series.

As blended finance increases in popularity, so do calls for more transparency and accountability in blended finance reporting. Although the potential for blended finance to catalyze additional private sector capital has been well documented, actual disbursements and development impact outcomes have not. This lack of transparency and accountability, especially around clear impact outcomes, makes it more challenging for policymakers and development practitioners to fully endorse the use of blended finance. There needs to be more proof that blended finance drives development impact.

Convergence was launched in 2016 to address key challenges impeding the scaling of blended finance. Under this mandate, Convergence has developed the largest and most comprehensive database of historical blended finance transactions. This information is primarily collected through credible public sources (e.g. press releases, case studies, news articles), as well as through data sharing agreements and validation exercises with Convergence members. As such, we have first-hand knowledge of the limitations and challenges of aggregating blended finance data.

Why transparency and accountability?

Increased transparency is not an end in itself, but an essential step towards improving the coordination, accountability, and effectiveness of blended finance. There are multiple key reasons to increase transparency in blended finance, including:

  1. Mobilizing the private sector: The availability of more information would help inform potential investors of risks and returns, which in turn, would likely lead to more capital being funneled towards future projects.

  2. Best use of concessional resources: As with all financial resources, concessional capital is finite and must be used as efficiently as possible. The more we know about what blended finance structures work and in what contexts, the more effectively we can utilize concessional finance.

  3. Achieving global commitments: Ultimately, the aim of blended finance is to help developing nations achieve the Sustainable Development Goals (SDGs). Transparency is required to ensure that the capital catalyzed through blended finance is going towards achieving the SDGs.

  4. Maintaining accountability: Transparency makes it more likely that blended finance actors will be held accountable. Public funders are accountable to taxpayers who deserve to know how their dollars are being spent, while private organizations have constituents that want to know their resources are being used efficiently. Through the IFC led Blended Finance Working Group Principles and OECD Blended Finance Principles, governments have committed to more transparency and sharing around blended finance.

What and how to disclose

While calls for transparency are well justified and there are many reasons to promote better disclosure, the question of what to disclose must be addressed. There is no shortage of proposed frameworks and policies for disclosing development information – such as the International Aid Transparency Initiative (IATI) and Creditor Reporting System (CRS) Aid Activities database. These existing frameworks could be leveraged and built upon for blended finance. The key data points blended finance practitioners should strive to disclose can be broadly grouped as (i) inputs, (ii) outputs, and (iii) outcomes.

Blended finance transparency

Many development organizations active in blended finance capture most, if not all, of this key information. Yet based on our experience, there is room to more clearly and systematically disclose this information, especially outputs and outcomes. First and foremost, blended finance information should be accessible – both easy to find and easy to comprehend (bonus points for sortable and/or downloadable data!). Practitioners should also consider how to make blended finance information more standardized. The more standardized blended finance data is, the easier it will be for organizations to aggregate and analyze current trends and opportunities in blended finance.

Looking ahead

As discussed in the first blog post in this series, blended finance can be complex to measure. Transparency is currently limited by a number of challenges. For example, the commercial side of transactions is often subject to confidentiality – often from both the private and public sectors – and may not be disclosed even well after the project’s completion. In addition, the multi-stakeholder nature of blended finance transactions means that there are multiple elements of, and perspectives on the information that is disclosed (e.g., outcomes). Even within a single organization, there are often multiple departments / groups deploying blended finance approaches and there may not be a centralized body to collect, aggregate, and disseminate this information publicly. That’s just to name a few of the challenges.

Nonetheless, Convergence and others – including the OECD (via the THK Roadmap) – continue to support more transparency and accountability in the field of blended finance. At Convergence, we have exciting additions coming to our database. In the next few months, we will be introducing new data on impact measurement for all of our deals.

By Gibran Haque, Data & Intelligence Intern at Convergence.

Other blogs from our impact series:

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