Our latest Data Brief considers the use of development guarantees in blended finance. There has been growing attention on the instrument following multiple reports that tout development guarantees as unlocking the greatest total volume of additional financing. Certainly, development guarantees can offer distinct advantages, including their ability to directly mobilize investment capital as well as the capital efficiency for public institutions and other concessional capital providers.

According to the Convergence database, approximately one-third of blended finance transactions (35%) have used a development guarantee, including development guarantees that are the ‘concessional’ piece as well as where they are deployed commercially alongside a form of concessional capital (e.g., technical assistance). Guarantees have been the second most prevalent form of risk-taking by catalytic, concessional capital providers (after funded risk participations) and have been successful in mobilizing significant investments from commercial banks and corporates to SDG-focused projects.

Ultimately, the objective of blended finance is not to maximize the amount of additional financing, but rather to achieve measurable progress towards sustainable development. Moreover, development guarantees should not be used as a one-size-fits-all solution for mobilizing additional private sector investment, but rather where it is determined to have financial and development additionality. Additional research is needed to determine when and where development guarantees have the greatest financial and development additionality. 

Blending with Guarantees

Authored by Convergence