We enter 2026 amidst a rapidly changing development finance landscape; ODA is under strain as public budgets tighten and countries focus increasingly on domestic priorities, while the scale of investment needed to address sustainable development continues to rise. Against this backdrop, we predict blended finance will need to evolve faster to: mobilize capital at scale, move beyond pilot approaches, and strengthen local capacity and ownership. Below, we make four predictions on how we see the market changing in the year ahead.
1. Localization, localization, localization
Just a few years ago, domestic capital mobilization was a peripheral priority for blended finance. After all, the “billions to trillions” agenda can only be realized by tapping into the deep financial markets of developed countries. Yet, amongst a rapidly changing development finance landscape, domestic private capital mobilization has become an increasingly important strategy. Convergence data reports that local capital continues to be a fraction of blended finance (under 20% of all blended finance flows), however we are seeing positive momentum, particularly from the private sector. As detailed in Convergence’s State of Climate Blended Finance 2025, local private investment increased from 17% to 19% between 2019-2021 and 2022-2024, driven by corporates and project sponsors.
Convergence has more deeply explored local capital mobilization trends on a country basis with a focus on Indonesia, the Philippines, and Vietnam, through the CC Facility Learning Hub report on Domestic Capital Mobilization for Climate Finance in Southeast Asia. The report outlines how an enabling national policy environment combined with blended finance tools can support greater domestic capital in climate finance, highlighting successful examples across the region. For example, in the Philippines, supportive regulation such as the Electric Vehicle Industry Development Act helped create the right conditions for EV sector growth, while a blended $100 million financing package from the Asian Development Bank helped mitigate high upfront costs and catalyze private investment by Ayala Corporation, effectively mobilizing one of the countries' largest conglomerates into EV charging infrastructure and electric vehicles.
One approach that has increasingly been adopted is blended finance country platforms,which are country-led initiatives that mobilize development finance around national priorities and shift investment from one-off transactions to programmatic deployment. Country platforms have been applauded for their ability to i) align national development plans and policies with investment priorities, ii) aggregate projects to achieve scale, and iii) efficiently raise public, private and philanthropic capital. One of the most consistent models has been using public and philanthropic sources at the platform level while raising commercial capital on a more individual basis.
Recent examples of country platforms include Singapore’s Financing Asia’s Transition Partnership (FAST-P), which was launched in 2023. Anchored by $500 million in concessional funding from the Singapore government, FAST-P uses public and philanthropic capital to de-risk investments and crowd in commercial capital through thematic funds, with an ambition to mobilize up to $5 billion overall. Its first fund, the Green Investments Partnership (GIP), reached first close in 2025 with $510 million from a diverse group of public, private, and development finance investors, including the Monetary Authority of Singapore, Export Finance Australia, the International Finance Corporation, FMO, British International Investment, HSBC, and Temasek. Managed by Pentagreen Capital, GIP provides blended debt financing for marginally bankable sustainable infrastructure across Asia. We expect to see this trend continue in 2026, with the Green Climate Fund announcing the support of 14 new country platforms.
2. Aligning development objectives and trade interests
Fostering greater trade finance between developed and developing economies has long been one outcome of blended finance. Convergence Market Data records 109 blended finance transactions in trade finance, representing approximately $18 billion in aggregate financing.
High-income governments are increasingly seeking to align development strategies in low- and middle-income countries with the advancement of their domestic economic priorities. The United States, the United Kingdom, Sweden, the Netherlands, and Switzerland are among the countries exploring how development spending might reinforce national objectives related to trade, exports, and investment. These shifts reflect broader economic and political pressures, industrial policy priorities, and evolving global trade dynamics.
In this context, actors such as export credit agencies are emerging as potentially pivotal intermediaries at the intersection of development finance and national trade policy, given their mandate to support exports while managing risk.
A recent example is Export Finance Australia’s $100 million loan to the Emerging Africa & Asia Infrastructure Fund (EAAIF, formerly EAIF) (see Convergence case study here), a blended finance vehicle backed by the Private Infrastructure Development Group (PIDG) and managed by Ninety One. The financing will support sustainable infrastructure and renewable energy projects across the Indo-Pacific, particularly in South and Southeast Asia, while simultaneously advancing Australia’s trade and investment priorities in the region. The transaction illustrates how export credit agencies can bolster private investment for development outcomes while also advancing their core mandate of promoting national economic and strategic objectives
3. Investment grade ratings, enabled by blended finance, as a prerequisite to investment
As recently explained by Convergence, a key trend we expect to see more of in 2026 is the increased use of investment grade credit ratings to unlock institutional capital for blended finance structures. Institutional investors such as pension funds, insurers, and asset owners often rely on credit ratings to make investment decisions, yet many blended funds remain unrated due to structural complexity and lack of standardized methodologies. This limits the ability of larger institutional pools to participate at scale, especially in emerging markets where perceived risk is high.
Fund managers can obtain credit ratings through various approaches. Firstly, blended finance vehicles can pursue external credit ratings at the fund level. The EAAIF mentioned above is a leading example; the Fund obtained an investment-grade foreign currency long-term issuer rating of A2 from Moody’s in 2022, backed by a diversified portfolio, highly liquid assets, and highly-rated shareholders via PIDG. Together, this provided institutional investors with an independent assessment of the fund’s credit quality across a diversified infrastructure portfolio.
A second approach is pursuing an internal rating approach, and rating each project before capital deployment. Here, Impact A’s Global Fund adapted a transaction-by-transaction approach, spurred by its partnership with Legal and General’s alternative assets platform. As such, Impact A designed a credit framework closely aligned to Moody’s methodology, and ensured each deal on its lending platform could be rated using a transparent and rigorous process.
Lastly, some blended vehicles are seeking ratings for specific tranches, typically senior debt. Lendable’s MSME Fintech Credit Fund II obtained an investment-grade rating for its senior debt, supported by Lendable’s long track record and a capital structure in which 60% of capital is subordinated through junior tranches that absorb losses first. This tranche-specific approach enabled Lendable to attract fully commercial institutional investors to the company.
Convergence has identified investment-grade ratings (around BBB) as the most important driver of private investment mobilisation at scale, as reflected in three of its standardized Private Investment Mobilization Models (PIMMs): PIMM 9 (Public Sector Blended Finance Debt Fund), PIMM 10 (Private Sector Blended Finance Debt Fund), and PIMM 5 (Project-Level Guarantees). These models demonstrate that it is possible to achieve investment-grade credit quality, and provide sufficient credit enhancement for private investors, without the conservative capital standards associated with AAA ratings typically prioritized by multilateral development banks (MDBs).
4. Synthetic Securitizations to Unlock MDB Balance Sheet Capacity
MDBs and development finance institutions (DFIs) are under increasing pressure to improve their headroom, or lending capacity, while increasing private sector mobilization targets, particularly as the US reduces its engagement in multilateral institutions. One approach to do this is via synthetic securitizations. We have seen this approach adopted by both global DFIs as well as their regional counterparts; the World Bank launched its own securitization programme in 2024, while the IFC is promoting a Warehouse-Enabled Securitization program to attract private investment. Concessional capital can provide additional protection; consider the recent example of the West Africa Development Bank (BOAD), which recently completed a XOF 160 billion (USD 270 million) multi-tranche securitization of a portfolio of performing non-sovereign loans through BOAD Titrisation, structured in senior, mezzanine, and junior tranches. BOAD retained the senior and junior (first-loss) tranches, while a AA+-rated mezzanine tranche of XOF 28.75 billion (around 18% of the structure) was placed with institutional investors, including a XOF 6 billion investment from the Africa Local Currency Bond Fund.The structure allowed BOAD to transfer part of the portfolio risk to third-party investors, while retaining the underlying assets on their balance sheet, with the end result of broadening local capital markets.
As the role of MDBs become even more important in the face of donor reductions, we envision securitizations playing an important role for domestic, regional, and global MDBs alike.
Convergence’s Upcoming Work on these Topics
Convergence will explore these themes further in the year ahead, beginning with the final PIMMs Action Plan coming in Spring 2026, which identifies the most efficient and effective actions to mobilize private investment at scale and achieve the mobilization objectives in line with the outcome document of the Fourth International Conference on Financing for Development, held in Sevilla in June 2025. On the topic of local capacity, Convergence will be releasing three Country Deep Dive reports, building on the Domestic Capital Mobilization Report mentioned earlier, examining domestic capital trends in Indonesia, the Philippines, and Vietnam through the CC Facility Learning Hub. Convergence will also release its Strategic Framework for Blended Finance in Spring 2026, outlining how governments can create enabling environments to scale blended finance and mobilize local capital across South and Southeast Asia.
