A new report of the DFI Working Group on Blended Concessional Finance in Private Sector Projects, found that in 2017 more than €8 billion of private investment projects were supported by about €1.0 billion in concessional funds channeled by 23 development finance institutions (DFIs).
In addition to EDFI, participating DFIs include IFC, ADB, AfDB, AIIB, EBRD, EIB, ICD, IDB and others. The joint report also shows that DFIs invested about €3.4 billion of their own commercial funds in these projects. The remaining finance of more than €2.9 billion came largely from private lenders and investors. A large volume of concessional resources was used in lower middle-income countries and Sub-Saharan Africa, although other country groups and regions were also well represented.
Concessional finance allows DFIs to support private sector projects beyond what they would normally be able to engage in, particularly in higher risk countries and for innovative technologies. For example, 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 SME development, and projects to develop agribusiness industries in hard-to-finance countries.
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.
Last year, this group of DFIs adopted enhanced principles on blended concessional finance to ensure concessionality is used to the minimum extent needed and to crowd-in other investors as much as possible and when justified by the presence of externalities, market failures, demonstration effects in pioneering projects, or important affordability considerations. The use of concessional funds combined with DFI own-account finance and/or that of the private sector is termed “blended concessional finance” by the DFI community.
Nanno Kleiterp, EDFI Chair, highlights: “The private sector has a crucial role to play in financing infrastructure, innovation and growing enterprises in emerging and frontier markets. We will have to fuse ambition and care to increase finance for the SDGs and support healthy markets. This important new report shows that close cooperation among development finance institutions puts us on the right path to succeed for the long-term.”
The release of the DFI report was announced at the Tri Hita Karana (THK) Forum on Sustainable Development in Bali where many attendees endorsed a program complementary to the DFI work called the “Tri Hita Karana Roadmap for Blended Finance.” This THK Roadmap, which was led by the OECD, covers a broader range of public/private support for private sector projects beyond the use of concessional finance but 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 and a common narrative for all stakeholders engaged in supporting private sector projects for development and helping reach the Sustainable Development Goals (SDGs).
For more information, visit https://www.edfi.eu/policy/
The 2018 DFI joint report can be found here.
The 2017 DFI Enhanced Principles joint report can be found here.
The Tri Hita Karana Roadmap for Blended Finance can be found here.