Topic Guide: Blended Finance for Infrastructure and Low-Carbon Development

Topic Guide: Blended Finance for Infrastructure and Low-Carbon Development provides an overview of both the theory and practice of blended finance. Given that certain infrastructure investments may not be commercially viable, innovative instruments have been sought to close this ‘viability gap’ and make a larger number of projects bankable. By blending grants with loans, this innovative approach to development finance aims to achieve a number of objectives – from increasing the volume of development finance in a context of constrained resources, to increasing the viability of investments, to enhancing the overall effectiveness of aid. Moreover, by demonstrating the long-term viability of markets, blending can potentially trigger an increase in private investment without the need for a grant element (although the evidence on this so-called ‘demonstration effect’ remains relatively weak).