Financial institutions (FIs) play a central role in shaping how capital flows through emerging markets and developing economies (EMDEs), influencing the pace, resilience, and inclusiveness of economic growth. To build sustainable and resilient economies in EMDEs, a holistic approach that fosters entrepreneurship, job creation, and well-being is necessary. Doing so requires the active participation and collaboration of community members, local businesses, and public entities with FIs at the center.

Blending arrangements seeking to mobilize FIs have expanded rapidly in recent years, with 301 transactions totaling $30.1 billion in aggregate financing being structured to date, and annual deal volume more than doubling between 2020 and 2024 as demand for intermediated lending to micro-, small and medium-sized enterprises (MSMEs) and households increased.

Development finance institutions and multilateral development banks increasingly rely on FI intermediation as a balance sheet-efficient strategy, pairing their own-account investments with donor-funded concessional windows to scale Sustainable Development Goal-aligned finance while managing risk, concentration limits, and credit rating constraints.

While FIs in EMDEs face structural constraints – including limited long-term funding, heightened risk exposure, and regulatory capital requirements – they are uniquely positioned to unlock impact at scale due to their deep local market knowledge, existing client relationships, and ability to efficiently channel blended finance to underserved households, MSMEs, and priority sectors.

DB Blending with Financial Institutions V5

Blending Arrangements with Financial Institutions, Convergence