What is Blended Finance?

Summary

Blended finance merges public and philanthropic funding with private investment to tackle development challenges in pursuit of the Sustainable Development Goals (SDGs). By leveraging catalytic capital, it aims to mobilize significant financial resources for key priorities like maternal and child health. While the potential of blended finance is recognized, challenges such as deal complexity, market distortion, and ensuring developmental impact persist. The OECD's guiding principles highlight the importance of effective partnerships, local context consideration, and monitoring transparency. To enhance its effectiveness, stakeholders must improve understanding and risk tolerance in investment strategies.

Takeaways

• 💰 Blended finance leverages public and philanthropic capital to attract private investment for development in emerging economies.
• 🌍 The primary goal of blended finance is to achieve Sustainable Development Goals (SDGs) while ensuring financial returns.
• 🔑 Key characteristics of blended finance include the necessity for financial returns, a focus on development impact, and the requirement for public funding to be catalytic.
• 👶 An example of blended finance in action is the Global Financing Facility, which supports maternal, child, and adolescent health initiatives.
• ⚖️ There are concerns regarding the complexity of structuring blended finance deals, which can affect their effectiveness and market stability.
• 📊 Transparency and effective measurement of outcomes are crucial for assessing the impact of blended finance initiatives.
• 🔍 The OECD has provided guiding principles for blended finance, emphasizing development rationale and effective partnerships.
• 📈 For blended finance to thrive, donor organizations must develop a better understanding and metrics for measuring additionality and value.
• 🚀 Multilateral and bilateral development finance institutions should take on more risks to facilitate greater private investment in development.
• 🔮 Blended finance has significant potential to mobilize funding for achieving SDGs, but careful structuring and strategic actions are essential for its success.

Q & A

What is blended finance?

Blended finance refers to the use of public and philanthropic capital to catalyze private investment in developing countries, focusing on key development priorities.

What are the three key characteristics of blended finance?

The three key characteristics of blended finance are: the investment must provide a financial return, it should seek to achieve a key Sustainable Development Goal (SDG) or address another development challenge, and the public or philanthropic capital must be catalytic, meaning private sector involvement would not have occurred without it.

Can you give an example of a blended finance initiative?

An example of a blended finance initiative is the Global Financing Facility, launched in 2015, which aims to support 'Every Woman Every Child' by leveraging public, philanthropic, and private investment to tackle issues related to Maternal, Child, and Adolescent Health.

What concerns are associated with blended finance deals?

Concerns include the complexity of structuring these deals, the potential for market distortion, and the need to ensure both financial and developmental additionality.

What guiding principles did the OECD release regarding blended finance?

The OECD's guiding principles for blended finance emphasize that it should be rooted in a development rationale, mobilize private capital, consider local contexts, promote effective partnerships, and ensure monitoring for effectiveness and transparency of development outcomes.

Why is transparency and measurement important in blended finance?

Transparency and measurement are crucial to verify the effectiveness of blended finance deals, ensuring that they provide both financial returns and meaningful developmental impacts.

What needs to happen for blended finance to grow effectively?

For blended finance to grow effectively, donor organizations must fully understand its principles, develop effective metrics for measuring additionality and value for money, and multilateral and bilateral development finance institutions should be willing to take on more risk in their investments.

What is the role of private capital in blended finance?

Private capital plays a critical role in blended finance as it is catalyzed by public and philanthropic investments to address development challenges, thereby increasing the overall funding available for achieving SDGs.

How does blended finance relate to the Sustainable Development Goals (SDGs)?

Blended finance aims to mobilize the necessary funding to achieve the SDGs by aligning investments with specific development goals and addressing key challenges in developing countries.

What were some recommendations from the 2017 report by Convergence on blended finance?

The 2017 report by Convergence recommended that donor organizations should fully understand blended finance, create effective metrics for measuring impact, and encourage development finance institutions to take on greater investment risks.