Oecd dac blended finance principles

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Blended finance in the poorest countries

OECD DAC BLENDED
FINANCE PRINCIPLES
for Unlocking Commercial Finance
for the Sustainable Development Goals
? Blended finance will contribute to faster economic growth,
but to achieve this it is vital to get donors into alignment. ?
MARTIN WOLF, CHIEF ECONOMICS COMMENTATOR, FINANCIAL TIMES
? The private sector recognises that donors need an effective
framework in order to take blended finance forward
to the next level, these Principles provide the step
in that direction, which now needs to be taken. ?
JULIA PRESCOT, HEAD OF STRATEGY, MERIDIAM
? The OECD DAC Principles are another important step forward
to align the international community, and especially, the key
development participants, around mobilizing
the funding that can help deliver the SDGs. ?
H.E. LUHUT PANJAITAN, COORDINATING MINISTER FOR MARITIME AFFAIRS,
REPUBLIC OF INDONESIA
2 BLENDED FINANCE PRINCIPLES
CHARLOTTE PETRI GORNITZKA, JORGE MOREIRA DA SILVA,
CHAIR OF THE OECD'S DEVELOPMENT DIRECTOR OF THE DEVELOPMENT
ASSISTANCE COMMITTEE CO-OPERATION DIRECTORATE (DCD)
ith 2030 fast approaching, financing Principles for Unlocking Commercial Finance for the
the Sustainable Development SDGs. Building on OECD analysis and best practices,
Goals (SDGs) is one of the starkest these Principles were shaped by the DAC members
challenges faced by providers and external stakeholders who provided country-level
of development co-operation. perspectives from their constituencies. As a result, the
W Blended finance is the strategic use of development OECD DAC Principles for Unlocking Commercial Finance
finance for the mobilisation of additional finance towards for the SDGs were approved at the DAC High Level
the SDGs in developing countries. It is a growing Meeting on 31 October 2017.
practice, as 17 of the 30 DAC members already carry
out blended finance activities and more donors are The OECD DAC Principles give a clear definition and
looking to enter this field. Official development finance provide a five-point checklist to ensure blended finance
plays a fundamental role, having unlocked an additional meets accepted quality standards and achieves impact,
USD 81 billion in private finance for development over based on a development rationale promoted by DAC
four years based on recent OECD analysis. members. The OECD DAC Principles represent a critical
first step towards ensuring that donors engage in the right
While existing blended finance initiatives aim to bring way, by guaranteeing that the policy framework is fit for
in much-needed private finance, their strategies, purpose. Whether a donor is looking to begin a blending
objectives and approaches vary greatly. Some programme or already has one, we recommend that
governments have been undertaking blending activities the OECD DAC Principles be used to test assumptions
for a considerable amount of time, while others are about how blending is currently being undertaken on
just beginning to use such instruments. Some may be critically important aspects such as the engagement
particularly risk averse and prefer standard approaches of local capital markets, the use of concessionality as a
such as concessional loans; others have focused on one precondition to blending, or the provision of monitoring
particular instrument, for instance guarantees. Some and evaluation mechanisms.
donors prefer to focus on priority sectors or regions,
others may want to pursue a broader approach. The OECD DAC Blended Finance Principles for Unlocking
Commercial Finance for the SDGs will be used to further
Finding an agreement amongst all stakeholders on inform our key partners such as the United Nations,
what constitutes good practice and aligns with the the European Union and the World Economic Forum in
SDGs has become critical. The OECD has responded progressing best practices in blended finance, including
by bringing together key players from the private through forums such the G20 and G7. We look forward
sector, civil society and governments to elaborate a to further engaging with these actors and others in order
common framework, the OECD DAC Blended Finance to deliver the SDGs.
BLENDED FINANCE PRINCIPLES 3
FOREWORD
Blended finance is one approach in the `toolbox' of The Principles are targeted at the policy level,
development finance which the OECD DAC Blended reflecting the development mandate of DAC donors,
Finance Principles aim to make more effective and and the policies and instruments under their political
efficient. The OECD definition of blended finance is "the oversight. They aim to ensure that blended finance
strategic use of development finance for the mobilisation is deployed in the most effective way to address
of additional finance towards sustainable development1 in the financing needs for sustainable development as
developing countries", with `additional finance' referring set out in the Addis Ababa Action Agenda (AAAA),
primarily to commercial finance.2 The focus thus lies on the by mobilising additional commercial capital and
mobilisation of commercial finance which is not currently enhancing impact. Whereas both concessional and/or
being directed towards development-related investments. non-concessional development finance can be part of
All relevant, higher level, commitments made by DAC blended structures, the use of concessional resources
Members in relation to development co-operation apply requires particular care, given its scarcity. Moreover,
to blended finance in the same way as to other financing potential competitive distortions need to be minimised
approaches. These include, amongst others, commitments and complementary objectives, such as structural
on official development assistance (ODA) financing targets, reforms, pursued.
the commitment on leaving no one behind, commitments
related to development effectiveness, as well as those The global context leaves no doubt about the
related to untying aid. Furthermore, these commitments importance of, and the opportunity for, blended
are addressed in the OECD DAC principles and will be finance. The need for mobilising sources beyond
further integrated into the design and implementation development finance for achieving development targets,
of blended finance policies and approaches in bilateral and the importance of using development finance in a
and multilateral development co-operation.3 catalytic way is well accepted and reflected in Agenda
2030, the Paris Agreement on Climate Change, and the
Blended finance is a key tool for direct mobilisation of AAAA. Increasing evidence of the superior long-term
commercial capital and offers an opportunity to move performance of sustainable investing points to a shift in
towards fully market-based financing in support of the SDGs. the alignment of development and commercial financing.
The private sector plays an important role in developing, New, evidence and data generated through blended
launching and executing projects in developing countries. finance can play a key role in demonstrating the potential
Both dimensions of the private sector, as the financier and to substantially enhance commercial actors' information
as the investee, are crucial in the context of blended finance. on and understanding of investment performance in
The Principles focus primarily on commercial actors as a developing country markets. By allowing more effective
source of potential financing for development that has not and sophisticated assessments of risk, blended finance
yet been targeted towards the SDGs. can thereby contribute to market building, and provide an
accelerated pathway towards sustainable development
The Principles have been developed in close co- investments as an asset class.
ordination with other international initiatives on
blended finance. This includes notably the DFI Enhanced In conclusion, blended finance carried out effectively
Principles on Blended Concessional Finance for Private holds the promise of yielding substantial additional gains
Sector Projects4 which address critical blended finance for all parties, especially to the benefit of those, whose
topics at the operational level by taking the perspective development needs require financing. The Principles
of implementing institutions. Meanwhile, the Business & serve as a call to action to deliver optimal blended
Sustainable Development Commission has focused on finance and to seize the opportunities that come with
gathering the private sector perspective.5 it for all sides.
1. Until 2030, the Sustainable Development Goals provide the universally agreed results framework in this regard.
2. Development finance, in the context of this definition, includes Official Development Finance as well as private funds that are governed by a development mandate e.g.
financing provided by philanthropic organisations. The Principles contained herewith focus on the increased mobilisation of additional commercial finance. As such, they
are narrower than the complete scope of blending activities, which also comprise some DAC members' use of blending for the mobilisation of additional public deve-
lopment finance ("Blending 1.0"). The narrower focus of these Principles reflects the evolution of blended finance, in light of the importance of increasing the mobilisation
of commercial finance ("Blending 2.0") to meet the financing needs of Agenda 2030.
3. Policy Guidance will be developed to support the operationalisation of the Principles by DAC Members.
4.
5.
4 BLENDED FINANCE PRINCIPLES
PRINCIPLES
PRINCIPLE 1 : A NCHOR BLENDED FINANCE USE TO A DEVELOPMENT
RATIONALE
PRINCIPLE 2 : D ESIGN BLENDED FINANCE TO INCREASE THE MOBILISATION
OF COMMERCIAL FINANCE
PRINCIPLE 3 : T AILOR BLENDED FINANCE TO LOCAL CONTEXT
PRINCIPLE 4 : F OCUS ON EFFECTIVE PARTNERING FOR BLENDED FINANCE
PRINCIPLE 5 : M ONITOR BLENDED FINANCE FOR TRANSPARENCY AND RESULTS
BLENDED FINANCE PRINCIPLES 5
PRINCIPLE 1 : ANCHOR BLENDED FINANCE
USE TO A DEVELOPMENT RATIONALE
All development finance interventions, including blended finance activities, are based on the
mandate of development finance providers' to support developing countries in achieving
social, economic and environmentally sustainable development.
A) Use development finance in blended finance as a driver to maximise
development outcomes and impact.
B) Define development objectives and expected results as the basis
for deploying development finance.
C) Demonstrate a commitment to high quality.
1a) Use development finance in blended finance blended finance. The overarching objective for the use of
as a driver to maximise development outcomes blended finance is the expansion of sustainable, market-
and impact. The development mandate provides the based solutions for development financing needs.
rationale for deploying development finance through
blended finance, as an effective and efficient financing 1c) Demonstrate a commitment to high quality.
approach towards its policy objectives. Consequently, High quality in the design and execution of projects
the SDGs are at the core of how and why official financed by development finance, including blended
development finance is used in blended finance. finance, are central to the objective of supporting the
development of functioning and effective markets.
1b) Define development objectives and expected Blended finance should be based on high corporate
results as the basis for deploying development governance, environmental and social standards, as
finance. Development objectives and expected results well as internationally recognised responsible business
should be defined before the deployment of blended conduct instruments, providing an opportunity for
finance. They should be mutually agreed and embraced commercial partners to acquaint themselves with quality
by all parties, as a key basis for the deployment of standards in unfamiliar markets.
? Private sector financing will be critical to reaching the 2030 goals.
DFIs have recently adopted joint guidance for the use
of blended concessional finance in our private sector operations.
We also welcome the OECD's efforts to bring donors and other
stakeholders together around policy principles for blended
finance. These initiatives will help us make the best use of scarce
development finance resources, having more development impact
and mobilising more than would otherwise be possible,
without getting in the way of the private market. ?
NANNO KLEITERP, CHAIRMAN, EUROPEAN DEVELOPMENT FINANCE INSTITUTIONS
6 BLENDED FINANCE PRINCIPLES

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