Vietnam's waste management issues are increasingly urgent. However, the implementation of an adequate waste management system has been impeded by several factors: i) weak regulatory frameworks have increased investment risk for international financiers prohibitively, preventing their participation; ii) domestic commercial banks lack the necessary structuring expertise to finance infrastructure projects; and iii) public sector budgets alone are insufficient to cover waste management investment needs alone.
The resultant financing gap has created a market failure, whereby critical high-impact potential waste solutions like waste-to-energy (WtE) technologies are unable to access the capital required for implementation.
The International Finance Corporation (IFC), using blended finance from the Finland-IFC Blended Finance for Climate Program (BFCP) alongside a market-rate loan for its own account, targeted the key market barriers to financing WtE facilities in Vietnam. Their participation, alongside grant funding support from the Government of Japan, bridged the financing gap by absorbing a level of construction and operational risk that otherwise prohibited the commercial viability of the project. By unlocking access to international financing, blended finance also helped circumvent issues surrounding domestic bank participation without crowding out other sources of commercial finance.
Key insights from this case study include:
Blended finance can address multilayered risk barriers that prevent private investment and result in market failure.
Blended finance can be strategically structured to enhance the capacity and financial standing of local entities.
In weak regulatory contexts, early engagement between public and private sector stakeholders yields important insights for the deployment of blended finance tools.
The use of blended finance by MDBs can priortize building market capacity for enhanced development impact, alongside private sector mobilization.
As WtE facilities become a more standardized component of holistic waste management strategies in Southeast Asia, there will be novel applications of blended finance.
