DI kicks off project on blended public−private finance for development

‘Blended finance’ can be described as the use of public-sector funds or guarantees to mobilise private capital for the financing of development projects. It has received increasing attention from the international community in recent debates, including being highlighted in the Addis Ababa Action Agenda as an innovative way for traditional aid providers to incentivise increased ‘development friendly’ investments.

Ambitious Sustainable Development Goals (SDGs) have been agreed by UN member states, but there is a significant financing gap for developing countries aiming to meet these goals, estimated at trillions of US dollars annually. This gap is very unlikely to be filled by official development assistance (ODA). Many of the least developed countries (LDCs) will face severe challenges in mobilising enough domestic resources to meet these financing needs. In this light, the private sector is increasingly being considered by development actors for its role in the new ‘global partnership for development’ and in mobilising finance to fill these gaps.

The target to increase use of public–private partnerships for financing development is now explicit in the SDG agenda. The use of blended finance mechanisms is already being significantly scaled up by both bilateral and multilateral donors. However, there is a limited stock of evidence on the impact of blended finance mechanisms on development, and a lack of clarity regarding which instruments are most effective in which contexts hampering informed policy dialogue and decision-making. There are also recognised challenges with blended finance, but these are not well understood and there is no common language between the many different stakeholders who play a role in delivering it.

In response to these needs, we at Development Initiatives are launching a project that seeks to address the evidence gap and drive policy making so that resources can be targeted where they are most needed and developing countries can reap the benefits of blended finance. Using available data, we will explain the basics, such as how much finance there is, who gives it and where it is being spent, and go further to provide evidence and analysis on complex issues, such as the effectiveness and impact of blended finance.

The objective of our work is to contribute to evidence-based policy dialogue, ultimately ensuring blended finance mechanisms are delivering better development cooperation for people and supporting the achievement of the SDGs in line with effectiveness principles. The rationale underpinning this approach is our strong belief that projects financed through blended mechanisms should, like other forms of development cooperation, have sustainable, positive impacts for the poorest people in developing countries.

We will deliver the following:

1) Analyse: map and describe blended finance flows and key actors, including developing case studies; identify and analyse challenges, opportunities and issues with blended finance mechanisms currently in use.

2) Apply: considering our evidence and the views of key stakeholders, develop pragmatic and progressive policy recommendations in line with our objectives.

3) Engage: using clear, accessible data and evidence, engage with key stakeholders and processes to promote understanding and influence policy change.

Our first data-driven report will be launched online in October 2016 and the research programme will continue after that.

If you would like to know more about our work on blended finance, please contact:

Read our blended finance report
Read our first discussion paper on blended finance
Read our second discussion paper on blended finance

Homepage photo credit: Gavin Houtheusen/DFID