The African Development Bank and other development finance institutions (DFIs) last year used about US$1.2 billion in concessional funds to support nearly US$9 billion in private investment projects in emerging markets, according to a new DFI report that highlights how blended concessional finance can be key to mobilizing private investment in challenging environments.
The report by the DFI Working Group on Blended Concessional Finance for Private Sector Projects offers an extensive set of data on the extent to which blended concessional finance is used by DFIs--including where and in what sectors, and how much private finance is mobilized. It reflects data from the Bank and 22 other DFIs--including the Asian Development Bank (AsDB), the Asia Infrastructure Investment Bank (AIIB), the European Bank for Reconstruction and Development (EBRD), European Development Finance Institutions (EDFI), the European Investment Bank (EIB), the Inter-American Development Bank Group (IDBG), International Finance Corporation (IFC) and the Islamic Corporation for the Development of the Private Sector (ICD).
Last year, the DFI Working Group adopted Enhanced Principles on blended concessional finance to ensure concessional funds are used to the minimum extent needed and to crowd in other investors as much as possible and when justified by market failures, demonstration effects in pioneering projects, important affordability considerations, or other economic factors.
Blended concessional finance involves combining concessional funds and commercial financing from DFIs and the private sector. It allows DFIs to support private sector projects beyond what they would normally be able to engage in, particularly in higher-risk countries. For example, the report showed that of the nearly US$9 billion in project financing unlocked by blended finance, 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. The report shows in 2017 projects financed by DFIs using concessional finance included innovative renewable energy projects in Africa and the Pacific, new technologies in Latin America and North Africa, innovative projects to mobilize finance for housing, guarantees for financial intermediaries to stimulate small and medium-sized enterprises (SMEs) development, and projects to develop agribusiness.
The report also notes best practices and improvements in governance, decision-making processes, documentation, training, and effective monitoring to ensure concessional funds are used efficiently.
The report was released on the sidelines of the Tri Hita Karana (THK) Forum on Sustainable Development in Bali, where attendees endorsed a complementary program called the "Tri Hita Karana Roadmap for Blended Finance." The THK Roadmap, led by the OECD, covers a broader range of public/private support for private sector projects beyond the use of concessional finance and is fully consistent with the DFI Enhanced Principles. The DFI Working Group contributed to and supports the THK Roadmap, and sees it as providing important shared values for all stakeholders engaged in supporting private sector projects for development and achieving the Sustainable Development Goals (SDGs).
