What Is Blended Finance, & Why Does it Matter?

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The elevator pitch for blended finance seems like common sense. Combine several sources of financing with different specialties to promote higher returns and mitigate risk. Unfortunately, the reality is a bit more complicated.

The combining of several sources of capital, leveraging the expertise and finance of development banks, private commercial banks, non-profit organizations, and governments requires high specialization. Luckily, several countries in Southeast Asia are leveraging these separate sources of capital to make projects that have not been possible in the past more realistic for investors.

Each separate sector of the blended finance market plays its own distinct role. The first of these players are the Development Finance Institutions , such as the World Bank and International Finance Corporation. They are critical in the process of risk-adjustment, financial technical assistance, and capacity-building initiatives. Investors are encouraged by the presence of DFIs as they offer expertise and reliability.

Catalytic funds, the most commonly used form of blended finance across Vietnam, Philippines, and Singapore, accounts for 85% of recent blended financing. This combination of public or philanthropic funds allows for the reduction in the cost of capital or mitigation of risk. Other forms of blended finance, including grants, guarantees and insurances, and technical assistance all help to develop the renewable sector.

 

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