Blended finance eurodad

Pdf File 523.45 KByte, 52 Pages

Title: Blended Finance: What it is, how it works and how it is used
Subject: In recent years, `blending' has become a common development finance term. The practice combines official development assistance with other private or public resources, in order to `leverage' additional funds from other actors. There is some confusion about its meaning, how it works, and how it fosters development, as well as a significant lack of project data. Blending can be problematic: it does not necessarily support pro-poor activities, often focuses on middle-income countries, and may give preferential treatment to donors' own private-sector firms. Projects may not align with country plans, and commonly fail to incorporate transparency, accountability, and stakeholder participation. This report aims to clarify what blending is, how it works and how it is used, to foster greater understanding of this increasingly prominent development finance mechanism.
Keywords: Development finance, blending, blended finance, ODA, private sector funding, public sector funding
Author: Javier Pereira
Creator: Acrobat PDFMaker 11 for Word
Producer: Adobe PDF Library 11.0
CreationDate: Fri Feb 10 11:33:05 2017
ModDate: Fri Feb 10 11:37:12 2017
Tagged: yes
Form: none
Pages: 52
Encrypted: no
Page size: 595.32 x 841.92 pts (A4) (rotated 0 degrees)
File size: 536014 bytes
Optimized: yes
PDF version: 1.6

  • Maryland - Baltimore City Department of Finance
  • PDF COURSE GUIDE Finance - Cengage
  • A Resource for Structuring Blended Finance Vehicles

A Resource for Structuring Blended Finance Vehicles

RESEARCH REPORT FEBRUARY 2017
Port de Pointe-Noire in the Republic of the Congo (Brazzaville), supported by a 328m blended finance package.
Photo: Congo Terminal Pointe-Noire.
BLENDED FINANCE
What it is, how it works and how it is used
JAVIER PEREIRA
Independent consultant
In recent years, `blending' has become a common development finance term.
The practice combines official development assistance with other private or
public resources, in order to `leverage' additional funds from other actors. There
is some confusion about its meaning, how it works, and how it fosters
development, as well as a significant lack of project data. Blending can be
problematic: it does not necessarily support pro-poor activities, often focuses on
middle-income countries, and may give preferential treatment to donors' own
private-sector firms. Projects may not align with country plans, and commonly
fail to incorporate transparency, accountability, and stakeholder participation.
This report aims to clarify what blending is, how it works and how it is used, to
foster greater understanding of this increasingly prominent development finance
mechanism.

CONTENTS
List of acronyms 3
Executive summary 5
Introduction 6
1 Blending as a global phenomenon 8
2 Analysis of the sample blending facilities 22
3 Concluding remarks 43
Annex I: Methodology 45
Annex II: Ex ante additionality assessment in EC blending
projects 46
Notes 47
Acknowledgements 51
2 Blended Finance
LIST OF ACRONYMS
AECID Spanish Development Cooperation Agency
ADF French Development Agency
AfDB African Development Bank
AfIF Africa Investment Facility
AIF Asia Investment Facility
CDB Caribbean Development Bank
CEB Council of Europe Development Bank
CIF Caribbean Investment Facility
CRS Creditor Reporting Service
DAC Development Assistance Committee
DEG German Investment Corporation
DFI Development finance institution
DG DEVCO Directorate-General for International Cooperation and Development
DGGF Dutch Good Growth Fund
EBRD European Bank for Reconstruction and Development
EC European Commission
ECA European Court of Auditors
EU European Union
EIB European Investment Bank
GFF Global Financing Facility in Support of Every Mother, Every Child
HRITF Health Results Innovation Trust Fund
IBRD International Bank for Reconstruction and Development
IDA International Development Association
IDB Inter-American Development Bank
IFCA Investment Facility for Central Asia
IFP Investment Facility for the Pacific
ITF EU-Africa Infrastructure Trust Fund
KfW Reconstruction Credit Institute (Germany)
Blended Finance 3
LAIF Latin America Investment Facility
M&E Monitoring and evaluation
NIF Neighbourhood Investment Facility
NORAD Norwegian Agency for Development Cooperation
ODA Official development assistance
OECD Organisation for Economic Co-operation and Development
PIDG Private Infrastructure Development Group
PPP Public-private partnership
PwC PricewaterhouseCoopers
RMNCAH Reproductive, maternal, newborn, child, and adolescent health
SCDB Seed Capital & Business Development Programme
SIMEST Societ? italiana per le imprese all'estero (Italian DFI)
SMEs Small- and medium-size enterprises
TA Technical assistance
TOSSD Total Official Support for Sustainable Development
WEF World Economic Forum
4 Blended Finance
EXECUTIVE SUMMARY
In the past few years, `blending' has become a common term in development finance. However,
there is some confusion about what it means and, by extension, how it works and contributes to
the achievement of certain development objectives. This report intends to weigh in on this
debate by exploring blending through three different questions: What is blending? How does it
work? And how is it being used?
Blending can be broadly defined as the combination of public concessional official development
assistance (ODA) with private or public resources, generally with the aim of `mobilizing' or
`leveraging' development finance from other actors. Beyond the mechanics of blending, there
are several other elements that influence its development impact. Accounting for the use of
ODA and the resources it mobilizes is a key part of blending projects' implementation and the
cornerstone of any further analysis. Such factors as the choice of project partners and
beneficiaries and the quality of decision-making structures, project design, and monitoring and
evaluation mechanisms all have a crucial bearing on the development outcomes.
The report builds on evidence from three blending facilities and pays particular attention to the
use of ODA for blending purposes. The result of this exercise is a list of several specific
quantitative and qualitative risks associated with the practice of blending that could undermine
its impact or that of development assistance flows in general. Key risks include:
? ODA and development finance inflation. The lack of a common methodology to account
for ODA for blending and mobilized finance can lead to double-counting and makes it
possible to report it as ODA money, which is not spent in a concessional way.
? ODA diversion from other aid modalities. New accounting methodologies could provide
intended or unintended incentives for using blending (e.g. because in addition to ODA,
donors can report significant amounts of mobilized finance). Moreover, it is also possible that
blending projects are easier to align with donors' political and economic priorities, compared
with other forms of ODA (e.g. the support of national private sector companies).
? ODA concentration on certain sectors and/or countries. For example, strong financial
sustainability requirements in blending facilities, or the managers and/or the absence of
incentives to focus on pro-poor projects, could lead donors to focus on countries and sectors
with a lower risk profile, such as middle-income countries.
? Lack of demonstrable development effects. Weaknesses in monitoring and evaluation
systems, or inadequate definitions of additionality, may allow projects to proceed in the
absence of demonstrable impacts or on the basis of financial performance.
? Lack of coordination with bilateral aid agencies and other donors. The use of indirect
channels of support and, often, the transfer of responsibility to external managers or project
leaders, can make it difficult to coordinate donors and their alignment with country plans.
? Poor project ownership and accountability. Transparency is a challenge in many
blending projects. In addition, several of the actors involved lack independent complaint
mechanisms. These issues make it difficult for affected stakeholders to channel their
concerns and hold donors accountable. The participation of public and private stakeholders
in project decisions is also a major challenge in blending projects, especially those involving
the private sector.
Blended Finance 5
INTRODUCTION
In the last few years, blending has become a common term in development finance; it often
appears associated with other financial terms, such as `leveraging'. However, there is some
confusion about what it means, and, by extension, how it works and contributes to the
achievement of certain development objectives. There is also a significant lack of data and
evidence about blending projects; something that can be partly explained by the lack of a
common language and understanding of blending.1 This report intends to contribute to the
building of a common and specific language of blending.
The objective of this report is to identify areas that are key to maximizing the development
impact of blending projects and describe the associated quantitative and qualitative risks. This
requires looking at the practice of blending itself, as well as at how it affects other flows and, in
particular, official development assistance (ODA). To simplify the analysis and guide the reader,
the topics have been aggregated into three broad research questions:
? What is blending? Blending can be broadly defined as the combination of public
concessional ODA with private or public resources, generally with the aim of `mobilizing' or
`leveraging' development finance from other actors. However, this is a broad definition that
comprises many different potential design options. This report breaks this definition down
into its essential elements and discusses its practical implications.
? How does blending work? In general, we assume that blending `leverages' or `mobilizes'
other sources of finance, but what does this mean, and what are the conditions necessary
for it to happen? This report explores the main building blocks of blending and tries to
provide some answers to these questions.
? How is blending being used? Beyond the mechanics of blending itself, there are several
other elements that influence the development impact of blending projects. Accounting for
the use of ODA and the resources it mobilizes is a key part of the implementation of blending
projects and the cornerstone of any further analysis. At a different level, the choice of project
partners and beneficiaries and the quality of decision-making structures, project design, and
monitoring and evaluation (M&E) mechanisms have a crucial influence on all development
projects.
This report was originally prepared to inform the work of Oxfam International and Eurodad on
the blending of public concessional ODA with private and public resources. Thus, our
concluding remarks reflect on the implications of the report's findings for their work.
RESEARCH APPROACH
To answer these questions, this report relies on the analysis of different sources of information.
A detailed review of three blending facilities complements the analysis of existing relevant
literature and secondary sources. This should help to fill some of the gaps in the existing
literature and test some of the conclusions reached by other authors. In the context of this
report, we understand a facility to be a set of projects implemented using a common pool of
funds under differentiated contractual, financial and management procedures.
We chose from among facilities seen as blending ODA funds in the literature and in their own
documentation. We have not used a definition to screen the facilities and instead have relied on
how the facilities depict themselves; this distinction helps cover facilities with different
operational models. In turn, this approach should provide richer evidence informing this
discussion, especially when it comes to establishing a definition of blending. The three different
facilities examined in this report are:
6 Blended Finance

Download Pdf File Online Preview