Skip to main content
You are currently impersonating the user:
28 May 19

How donor governments blend

How donor governments blend

Figure 1: Top donor governments by number of commitments

According to Convergence’s most recent Data Brief on donor governments and their engagement in blended finance, donor governments have participated in approximately half (56%) of blended finance transactions captured in Convergence’s database. This number is only expected to grow, with around half of Organisation for Economic Development and Coordination’s (OECD) Development Assistance Committee (DAC) members currently identifying in-house blended finance programs or practices. Donor governments have deployed financing to blended finance transactions to varying degrees to date. While certain donor governments have more sophisticated practices, blended finance solutions have been primarily supported on a case-by-case basis.

To facilitate more coordinated and effective action, the Tri Hita Karana (THK) Roadmap for Blended Finance was adopted in October 2018 as a common framework for mobilizing additional financing for the Sustainable Development Goals (SDGs). Developed in a multi-stakeholder process, donor governments alongside international organisations, development financiers, and private sector actors committed to five action areas:

  1. Practice: Translate the common narrative into good practice

  2. Mobilisation: Accelerate mobilisation of private commercial finance

  3. Transparency: Build on efforts to facilitate transparency in the use of blended finance

  4. Build inclusive markets: Addressing specificities in the local and international investment climate

  5. Impact: Promote measurement and monitoring of the impact of blended investments towards the SDGs

This begs an important question: how have donor governments used blended finance to date?

Donor governments have committed various types of financial resources (e.g., grants, guarantees) to blended finance solutions, both directly and indirectly (e.g., indirectly through multilateral organizations or funds). Based on current data, the top donor governments, by number of direct commitments to blended finance solutions, have been the United States (72 commitments), the United Kingdom (40 commitments), and the Netherlands (39 commitments).

In the last few years, many donor governments have started to more proactively build on blended finance approaches deployed to date, independently as well as through multilateral efforts spearheaded by the OECD and G7.

Switzerland is one example of a donor government that promotes the use of Official Development Assistance (ODA) to mobilize additional development finance in line with the Addis Ababa Action Agenda. As ODA levels have remained relatively flat over the last few years, both of Switzerland’s development agencies – the Swiss State Secretariat for Economic Affairs (SECO) and the Swiss Agency for Development Cooperation (SDC) – have recognized the important role of the private sector in closing the $2.5 trillion SDG funding gap. Both of these agencies are in the process of stepping up their private sector engagement with a specific focus on blended finance.

Private sector development and infrastructure financing are two key approaches deployed by SECO, with private sector development accounting for roughly half of SECO’s funding envelope. While no specific target for private capital mobilization has been set so far, SECO has solid experience in partnering with the private sector and, going forward, will aim to mobilize additional private sector capital in the area of climate finance. In particular, SECO places the highest priority on mobilizing additional financing from commercial investors, including multinational banks and pension funds.

The focus of SECO on climate finance mirrors a broader trend across donor governments. The majority of blended finance transactions with donor commitments have been in the energy sector (48% of transactions with donors versus 28% of all transactions), with a majority of this financing targeting renewable energy and energy efficiency projects to reduce carbon emissions. This is also reflected in the context of the SDGs, donor governments and multilateral entities have been more likely to commit funding to blended finance transactions aligned to Goal 13 (Climate Action, 45% of transactions with donor commitments versus 34% of all transactions) and Goal 7 (Affordable and Clean Energy, 41% versus 33%).

Transactions with donor commitments by target sector Figure 2: Transactions with donor commitments by target sector

As expected, poverty reduction is also a priority for many donor governments. Promisingly, blended finance transactions with donor commitments have been relatively more likely to prioritize low income countries and relatively less likely to prioritize lower-middle income countries, upper-middle income countries, and high income countries. This is in line with the mandate of ODA as well as the ‘leave no one behind’ agenda. Still, the majority of blended finance flows, even those with donor commitments, have flowed to middle income countries to date.

Transactions with donor commitments by target region Figure 3: Transactions with donor commitments by target region

Convergence, THK Roadmap stakeholders, and other blended finance practitioners are eager to ensure the effectiveness and scaling up of blended finance solutions. Convergence’s new data brief seeks to contribute to this conversation by beginning to benchmark how donor governments have participated in blended finance to date. Improving transparency can build trust and strengthen the case for more ODA to be directed towards blended finance.

Become a member to read the full brief.

By Justice Johnston, former Manager at Convergence