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Beyond Leverage Ratios: A Strategic Approach to Blended Finance

IDB Invest

This report explores how and to what end blended finance mobilizes private investment towards the SDGs, moving away from an emphasis on private capital leverage as an efficiency metric, and relying instead on the concept of net social returns that incorporate the wider economic effects of blended finance and its cost to the taxpayer.

The first section addresses two preliminary questions, (i) what is the end goal for blended finance practitioners, and (ii) what can we infer from economics theory as to the justification and efficiency of blended finance? Through these lenses, the second section assesses some practical blended finance investment strategies: (i) creating knowledge spillovers that can affect markets’ behaviors, (ii) fixing weak links in complementary production networks. These are not the only justifications for concessional blended finance, but they exemplify the approach based on starting with an idea about where large social returns on investment are likely to be found, and then allocating blended finance when needed to enable investments that have those characteristics.

    12 Apr 23
    Policy and Research Reports
    Region Focus
    Latin America & the Caribbean