OECD Report: Blended Finance in the Least Developed Countries 2019

There are different definitions of blended finance. The Addis Ababa Action Agenda refers to blended finance as combining concessional public finance with non-concessional private finance. The OECD employs a broader definition that extends beyond concessional finance, as follows: “The strategic use of development finance for the mobilization of additional finance towards the SDGs in developing countries”, where “additional finance” refers primarily to commercial finance that does not have an explicit development purpose.

While international and domestic public finance remains essential to meet the SDGs, public resources alone will not be enough. The challenge is particularly acute in the least developed countries (LDCs), which have experienced a recent decline in official development assistance (ODA). LDCs also often find it difficult to attract private investment, including foreign direct investment. Blended finance offers potential opportunities to increase the resources available to LDCs. But such approaches are not without limitations or risks, and need to be deployed carefully.

This report outlines the latest trends in blended finance approaches in LDCs:

LDCs receive a small piece of the blended finance pie. Of all the private finance mobilised by official development finance interventions between 2012 and 2017, approximately USD 9.3 billion, or 6%, went to LDCs, whereas over 70% went to middle-income countries.
On average, blended finance deals in LDCs mobilise less private finance than those in other developing countries.
Some LDCs benefit more than others. The top five recipients – Angola, Senegal, Myanmar, Bangladesh, and Zambia- together received approximately 44% of the total volume of private finance mobilised and almost 22.5% of all deals in the LDCs in 2012-2017.
Some LDCs receive no blended finance, but do receive official development assistance (ODA).
Credit and risk guarantees continue to mobilise the most private finance in absolute terms, at 63% of the total volume reported in 2012-2017.
Energy, banking and financial services are the largest, and growing, sectors, representing 23% (USD 2.16 billion) and 19% (USD 1.8 billion) respectively over the six years analysed.
Multilateral donors mobilised the largest amounts of private finance in LDCs: USD 5.2 billion or 56% of all private finance over 2012-2017.
Most mobilised private capital reaching LDCs comes from high-income countries. While LDCs themselves remain a significant source of additional capital, their importance has diminished from 42% of finance mobilised in 2012 to 14% in 2017.
The number and variety of players entering the blended finance space is increasing. While some donors are taking steps to increase their engagement in LDCs, the data suggest that many providers still tend to overlook these markets when it comes to blending.

The report also features seven guest pieces by practitioners and experts working in the blended finance space, which showcase the opportunities and challenges of applying blended finance solutions in LDCs. It concludes with a review of the next steps for the blended finance and development communities, and flags some emerging issues revealed.

More information: https://www.oecd.org/finance/blended-finance-in-the-least-developed-countries-2019-1c142aae-en.htm