According to the OECD's definition, blended finance is the strategic use of development finance for the mobilization of additional finance towards sustainable development in developing countries.
The publication stresses that blended finance has potential to scale up commercial finance for the SDGs and help bridge the estimated US$2.5 trillion per year investment gap for delivering the goals in developing countries, but its evidence base is still limited.
29 January 2018: A report from the Organisation for Economic Co-operation and Development (OECD) looks at blended finance for the SDGs, and notes that 17 members of the OECD Development Assistance Committee (DAC) engage in blended finance, although at different stages in terms of the range of instruments used and how blending is carried out. Between 2000 and 2016, donor governments set up 167 dedicated facilities that pool public financing for blending, and the number of new facilities grew every year.
The report titled, ‘Making Blended Finance Work for the Sustainable Development Goals,’ was launched in Paris, France, on 29 January 2018, during the OECD conference on ‘Private Finance for Sustainable Development.’ The report describes concepts and definitions, presents an overview of actors and instruments, and discusses lessons learned from blending approaches, tracking and data, and monitoring and evaluation. It also provides recommendations for policy makers and practitioners and priorities for action, drawing on surveys, case studies, interviews and desk research.
The deployment of blended finance must be based on common principles.
The publication argues that while blending has potential to scale up commercial finance for the SDGs and help bridge the estimated US$2.5 trillion per year investment gap for delivering the goals in developing countries, its deployment by the development finance community needs to be based on a common framing and principles. It stresses that while interest in blending is increasing, the evidence base is still quite limited. To address that, the authors explain, the OECD is engaged in work on tracking the volume of private finance mobilized by official development finance interventions that will be institutionalized in the reporting system for OECD DAC members.
The report notes that a critical first step to effective blended finance is a common definition. To that end, the publication and the OECD DAC Blended Finance Principles, which were endorsed by the DAC High Level Meeting in 2017, present a definition and framework to support donor governments in designing approaches that mobilize and better target commercial capital towards the SDGs. According to the OECD definition, blended finance is the strategic use of development finance for the mobilization of additional finance towards sustainable development in developing countries. Additional finance is commercial finance that does not have an explicit development purpose, and that has not primarily targeted development outcomes in developing countries. Development finance is public and private finance that is being deployed with a development mandate.
The OECD framing of blended finance distinguishes finance by purpose rather than by source, moving away from the emphasis on public/private actors to highlight development/commercial finance flows. It is broader than those used by multilateral development banks (MDBs) and development finance institutions (DFIs) as it does not depend on concessionality as a pre-requisite for blending, and considers blending in the context of both public and private investments. The instruments used for blending extend beyond the more traditional loans and grants to include the use of impact funds, guarantees, securitization, currency hedging and political risk insurance.
The authors note that while there is increasing donor interest in blending, there is also an increase in fragmentation in approaches and vehicles used. The report indicates that this situation is why attracting commercial capital at scale will require standardization in terms of both access to development finance and instruments used.
The report stresses the need for donor governments to ensure that blended finance mobilizes commercial resources that are not currently supporting development and better target blended finance to a broader range of development issues (i.e. the SDGs) and contexts. It also recommends the adoption of OECD’s Blended Finance Principles:
[Publication: Making Blended Finance Work for the Sustainable Development Goals] [OECD Blended Finance Principles]