Why transparency and accountability should be a principle of good blended finance

This may be yet another blog about transparency and accountability from an NGO. But in the case of blended finance,[i] we really do need more transparency and accountability. Why? Two reasons:

One: because the current picture has some serious transparency red flags (covered in detail in our recent report). The challenges of transparency in development finance institutions, key blended finance actors, are also well documented.[ii]

Two: because when a substantial new financing agenda driven by some of the most influential bilateral donors and global institutions, and heavily reliant on the private sector for implementation, starts being rolled out in a big way, it’s a useful time to re-examine what core development concepts mean to all of us, and ask how they can be useful to us in this new world.

Here are key elements to think about:

• Trust and effective partnerships Providing access to information, particularly the more qualitative information (What did you do? Who makes decisions, based on what?) can instil trust between partners – potentially very beneficial to the complex co-financing, multi-stakeholder arrangements on which blended finance relies.
• Good monitoring, evaluation and reporting Transparency, particularly when implemented by reporting data in a timely, granular and machine-readable fashion, can underpin effective monitoring and evaluation. This will be critical as we build a collective understanding of how blended finance impacts on development, job creation and poverty.
• Accountability The blended finance agenda is promoted in the spirit of the UN Sustainable Development Goals, committed to by governments ‘on behalf of the people we serve’. Many of the organisations putting resources into blending (donor government agencies and development finance institutions) are also publicly funded. The sector therefore has a responsibility to consider how best to deliver accountability to the public – and the intended beneficiaries.
• Good decision-making When trialling something new, we ideally need to understand how it works in relation to the existing approach – in this case, blended finance versus traditional ODA, in the form of grants and loans. If we don’t have a transparent process for gathering information on where and how blended finance is being used globally, how will decision-makers know where it may be best suited, or where traditional forms of aid may still be needed?

This shouldn’t be controversial – most of the actors involved have some commitment to transparency as a principle, and try to uphold it in practice. Most of the objections to making blending more transparent seem to be practical implementation challenges. Here are a couple of common ones.

‘Transparency is too bureaucratic/costly to implement, it’s a public sector idea that doesn’t translate to the private setting.’

So let’s talk about ways of doing transparency differently, using technology, innovation and ideas from private actors to add to the knowledge and experience of the development sector. We could improve on what we have currently – where you manually search through organisations’ websites until you find a title of a project; get in touch; wait until the relevant person responds with what further detail they are allowed to give you … and then realise that the information you have isn’t enough.[iii] Feels like bureaucracy to me. Transparency, when done right, can help to eliminate bureaucracy and make things more efficient. How much better would it be to have an online, regularly updated source of blended finance data, searchable by government funder, fund manager, country, sector and type of financing instrument (perhaps with downloadable data in CSV)? Even better if it was integrated with existing reporting systems, such as the Development Assistance Committee’s Creditor Reporting System, or IATI.[iv]

‘Blended finance deals need to be confidential – they’re commercially sensitive’.

What information would we actually need to achieve appropriate levels of transparency? We want to know whether it’s a good use of public money (particularly official development assistance), being used for its intended purpose (economic development and job creation in developing countries). So

• the amount of public money/ODA put into the deal, and the amount of private money ‘leveraged’
• the country in which the investment was made and the sector of the investment
• the size/type of company being invested in; (note – not necessarily company names)
• the jurisdiction of the company (to verify whether local firms are benefiting from blended finance – part of blended finance’s purpose is to create local jobs)
• the name of the implementing fund (the one managed by the financing institution), if one’s involved
• the instruments through which the investment (or at least the public part of it) is being made (e.g. guarantee, loan, grant etc)
• the outline terms of the investment (at least of the public element of it)[v]
• the date of the deal being made.

As someone who believes in transparency, I’m uncomfortable with saying that this kind of information is not in the public interest: DI have yet to see a convincing argument for why it would not be possible to provide this data, particularly if published, say, a year after the fact. According to Open Contracting, ‘commercial confidentiality’ is not a defined term: what is ‘commercially sensitive’ varies by jurisdiction (as do disclosure policies of development finance institutions). Information is deemed commercially sensitive when the release of the information “is likely to harm the company’s interests or competitiveness” – this seems to be a subjective assessment that we could collectively rethink in relation to the individual items of data above. I’d be interested to look at real-life examples and hear a funder’s analysis as to whether there would actually be significant harm done to a company if data like this were released.

Transparency should be a principle underpinning blended finance for development, in the spirit of good partnerships, effectiveness and accountability. If all actors share the same goal for blended finance – incentivising the private sector to go where it is desperately needed, to deliver infrastructure or create jobs – then we ought to be happy with the idea of providing the information to prove it. However we all – even NGOs – need to recognise that challenges to delivering transparency (I haven’t covered them all here) need to be addressed. We should commit to overcoming the challenges together, through sharing our collective expertise.

Notes

[i] Blended finance is an emerging term in development finance, generally taken to mean the use of public finance such as aid to de-risk or ‘leverage’ private resources for development outcomes. Note the argument for increasing transparency in ‘public-public’ blended finance (blended grants and loans from public institutions) is just as valid; the confusion around definitions of ‘blended finance’ is in itself a major barrier to transparency, but we haven’t gone into it here. For more on this, see our 2016 discussion paper  http://devinit.org/post/the-role-of-blended-finance-in-the-2030-agenda-setting-out-our-analytical-approach/#

[ii] See: The centre for Global Development, 2015. Four Challenges for Blended Finance and Development Finance Institutions. Available at: https://www.cgdev.org/blog/four-challenges-blended-finance-and-development-finance-institutions

[iii] Even when donor agencies wanted to give us data for our recent report, they often couldn’t, because it wasn’t in the proper format and would take too long to get ready.

[iv] Already, key actors in blended finance like the Private Infrastructure Development Group and the International Finance Corporation use the International Aid Transparency Initiative data standard for publishing information about development finance.

[v] Terms would include interest rate; duration; grace period; or in the case of guarantees, the guarantee fee. This would align with current policy around disclosure of sovereign loans data to the OECD Creditor Reporting System (to which donors currently report information on their official development assistance).