Blending is trending but it’s time for international policy standards

1st December 2017 Jorge Moreira da Silva

Blended finance has been propelled into international policy discussions as fast – or faster – than the 2030 Agenda has advanced.

More than 189 blended finance funds have been launched and US$31 billion committed in donor facilities towards blending over the last decade. As well as this, the majority of major donor countries, represented by OECD Development Assistance Committee (DAC), are engaged in using blended finance for sustainable development. According to OECD analysis, US$81 billion was mobilised from the private sector by official development finance in three years.

While the 2015 Addis Ababa Action Agenda carved out a role for the private sector to support the financing of the Sustainable Development Goals, the question of how the integrity of official development assistance would be protected with an injection of private investment remained highly controversial.

Discussions at the 2017 United Nations General Assembly, World Economic Forum, COP23, and other international coordination bodies demonstrate how far institutions have moved in two short years from a debate about if we should harness blended finance for development, to one of how to do this most effectively.

Current resources are not sufficient to meet the ambitious 2030 Agenda. There is an estimated US$2.5 trillion annual shortfall in the finance required to achieve the Sustainable Development Goals (SDGs) . Cash is not the only tool: blending injects other important elements from both sides. The private sector injects innovation, risk-taking and a results-orientation to development projects. The public sector brings confidence, transparency, and a responsibility to taxpayers and international development mandates. Governments can’t take the risks that the private sector is afforded, and the private sector cannot bring innovative models to scale.

As a result, we are seeing significant increases in the capital available to development finance institutions, as shown by the UK Department for International Development (DfID)’s increases in yearly capital allocation to the CDC group, which amounts to £703 million per year. The size and ambition of initiatives is also increasing, including those of institutional investors. Take for example International Finance Corporation (IFC) and Allianz‘s Managed Co-Lending Portfolio Programme, where Allianz is set to make an investment of US$500 million to be co-invested alongside an IFC debt financing for infrastructure projects in emerging markets worldwide.

The rise in popularity of blended finance warrants an urgent need for international policy co-ordination to ensure blending supports developing countries’ SDG plans. Scaling-up initiatives and making sure collective efforts in blending effectively promote developing countries’ goals requires a level playing field, as well as clear, accepted rules of the game.

Our role is to ensure that this policy framework is fit for purpose. The Blended Finance Principles for Unlocking Commercial Finance for the SDGs, adopted by the DAC at its 51st High-Level Meeting in October, represents the first step towards ensuring that donors advance the right kind of blending.

While we mobilise the full range of our expertise and tools to monitor and analyse the effectiveness of blended finance projects, we will also rely on hearing the ground truth from partners, especially the private sector, on what governments can do to attract the right blending partners, and promote a more sustainable approach to investment in developing countries, leading up to 2030 and beyond.

About the Author

Jorge Moreira da Silva Headshot

Jorge Moreira da Silva

Jorge Moreira da Silva is the Director of the Development Co-operation Directorate at the OECD and Former Minister of Environment and Energy of Portugal.

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