The need to mobilise private finance is at the heart of international discussions on how to finance the Sustainable Development Goals (SDGs) and move the needle from ‘billions’ of dollars in development aid to ‘trillions’ of dollars in investment (World Bank, 2015). With an estimated SDG financing gap of $2.5 trillion a year in developing countries alone (UNCTAD, 2014), the international development community is placing an increasing emphasis on blended finance.
Blended finance uses public-sector development finance to spur additional private investment in a bid to generate economic growth and create jobs, thus lifting people out of poverty. The notion of ‘billions to trillions’ (World Bank, 2015), though originally broader in meaning, has become synonymous with the mobilisation of private finance for development. However, policy-makers often have lofty aspirations, with limited appreciation of its potential and limitations. The more official development assistance (ODA) is channelled to blended finance, and the more blended finance is scaled up, the more pressing the need for better understanding of its potential to bridge the SDG financing gap.
This report aims to provide hard evidence to inform the discussion on the role of blended finance in plugging the SDG financing gap in developing countries by:
- reviewing the amounts of private finance mobilised and estimating leverage ratios to assess the scale and potential of blended finance
- analysing the blended-finance landscape of country groups and economic sectors
- focusing on low-income countries (LICs), where the need for additional finance is greatest, and identifying factors likely to constrain blended finance’s potential there.
The report examines in detail the investment portfolios of the largest and most important blended-finance actors, which account for more than three quarters of the total private finance mobilised in LICs, according to the OECD.2 It analyses the most recent four-year period for which comprehensive mobilisation data are available.