A Vision for Blended Finance?

01/10/2018

Convergence, the global network for blended finance to support the SDGs, has published a second “State of Blended Finance” report.  This finds that some $100 billion has been raised since 2005, but with a pattern of growth in deal numbers and amounts that’s been steady rather than accelerating in any perceptible way (see p 12).  About a quarter of transactions are related to the climate action SDG.

A worrying finding is that deals are mainly being done in middle income countries, with LDCs missing out – only 7% of the $81 billion of private finance raised through blended structures went to these countries, with 77% being raised in middle income countries and the balance going to global or regional efforts (p33).

For those not familiar with the notion of blended finance, the report includes some useful basic information on what it is, the kind of structures it employs and what it can and can’t be used for. There is also a useful run-down of the different types of investor in blended finance and their objectives and return expectations.

For those more familiar with the blended finance concept, there are useful sections towards the end on recent market developments and trends, together with a call for a “vision” for blended finance (p37).

What is strangely missing from the report, and the vision, is any apparent reference to leverage ratios, that is the amount of money pulled in from private sources as a multiplier of money that’s contributed from public sources in order to de-risk deals.  The report notes (p8) that “an allocation of 10% of total development assistance to blended finance structures with an average leverage ratio of seven could crowd-in over $105 billion per annum of private investment to developing countries and sustainable development. This is three times the combined annual multilateral development bank (MDB) and development finance institution (DFI) financing to the private sector in developing countries.”  

Very few DFIs seem to be achieving this kind of leverage ratio, so creating a standard definition and targets would surely be a useful addition to the blended finance landscape.

The full report can be downloaded here

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