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EDFI Strengthens Cooperation on Effective and Efficient Use of Blended Finance
When and how to use limited donor funds to increase private capital investment to achieve development goals in emerging markets is the focus of enhanced principles on blended concessional finance for private sector operations published today as part of a report produced by more than 20 development finance institutions (DFIs), including the European DFIs.
Global commitments to tackle climate change, end extreme poverty, and close investment gaps in critical infrastructure have highlighted the potential of blended concessional finance as one tool to spur private sector activity when fully commercial solutions are not yet available. This type of financing combines donor concessional funds with funds from DFIs’ own account and commercial funds from other investors. It makes projects viable when investors and companies perceive high risks from market failures, technology, or first-mover business models—and the potential for development impact is high. Nanno Kleiterp, EDFI Chairman, comments:
It is estimated up to $4.5 trillion per year in investment will be required to reach the development goals. Today, ODA represents about $130 billion, which means governments will not be able to finance the Global Goals on their own. The private sector has a crucial role to play and blended finance can contribute to the funding gap needed to achieve the SDGs. We should use it in a way that maximises the efficiency and development impact. The European DFIs can play a key role in catalysing private sector investors, like pension funds and insurance companies.
The principles, first published in 2013, have been enhanced with more detailed guidelines developed by a working group representing DFIs that annually invest more than $35 billion a year in private sector solutions.
The principles include how to promote commercially sustainable solutions using minimum concessionality. They also state the need for high social, environmental, and governance standards. The working group also agreed to exchange best practices, pilot a data-gathering exercise, and examine case studies to support the development of these enhanced principles. Other institutions are welcome and encouraged to join these efforts.
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