Blending

Defining the concept of Blended Finance (BF) is best done by understanding its drivers. One of the main drivers is the need for significant additional resources to reach the ambitious development goals set in the context of the Sustainable Development Goals (SDGs), the Paris Agreement on climate change and the Addis Ababa Action Agenda (AAAA). This need for additional resources goes beyond the potential growth of existing ODA budgets or other parts of international and local government budgets, hence the need to mobilise private resources. The mobilisation of private resources in development cooperation in this sense is perceived as a necessity not as a choice.

The need for mobilising private resources coincides with the ‘private turn’ in Development Cooperation, which is a second driver of BF. Not only has the development of the private sector been a growing topic in Development Cooperation, but also has the inclusion of the private sector for development (PS4D) gained attention in Development Cooperation policy. There are different push and pull factors for the growing importance of the private sector in the development context, but it is certainly a trend that will stay and probably even grow.

A third driver, be it maybe of lesser importance, is the growing interest from the side of the private sector for emerging markets and for bottom of the pyramid markets. This growing interest stems from the search for new business opportunities, but also from new attitudes towards entrepreneurship visible in the increasing attention for social entrepreneurship, inclusive business, corporate social responsibility (CSR) and accountability (CSA), and hybrid business models. This growing interest in sustainable business is also seen in the growth of impact investment funds, that specifically target investments with a positive impact on a more sustainable society.

The understanding of these drivers confirms the OECD definition of Blended Finance as ‘the strategic use of public or private investment with a development objective, including concessional tools, to mobilise additional finance with a commercial motivation for SDG-aligned investments in developing countries’.