Blended finance key to attracting private investment in emerging economies – report

Blended concessional finance could play a key role in mobilising private investment in challenging environments such as developing countries, according to a new DFI (development finance institutions) Working Group report released yesterday.

The report provides an extensive set of data from 23 DFIs, including the African Development Bank (AfDB), showing the extent to which blended concessional finance is used by DFIs – including where and in what sectors, and how much private finance is mobilised.

Blended concessional finance involves the combining of concessional funds and commercial financing from DFIs and the private sector and allows DFIs to support private sector projects beyond what they would normally be able to, particularly in higher-risk countries.

The report found that about US$1.2 billion in concessional funds was used in 2017 to support nearly US$9 billion in private investment projects in emerging markets. Of the nearly US$9 billion of project financing unlocked, more than US$3.3 billion came from private lenders and investors.

“DFIs are increasingly leveraging financing of this type to channel private investment into challenging markets, particularly in sub-Saharan Africa and in low and lower-middle income countries,” an AfDB spokesperson said.

Projects financed in 2017 by DFIs using this method of financing included innovative renewable energy projects in Africa, guarantees for financial intermediaries to stimulate small and medium-sized enterprise development, and projects to develop agribusiness.

The report also noted that improvements in governance, decision-making processes and documentation in emerging markets were necessary to ensure concessional funds were used efficiently.

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