Blended Finance for SDGs
By admin April 28, 2017

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The Sustainable Development Goals (SDGs) launched by the United Nations (UN) set an ambitious agenda for common prosperity, with goals and targets covering areas of critical importance for humanity and the planet. According to estimates by the UN, financing the SDGs will require annual investments of around US$3.9 trillion and currently there is a US$2.5 trillion development investment gap. Public resources including the Official Development Assistance (ODA) are not sufficient to meet financing needs. The challenge for the international community, said Peter Thomson, president of the UN General Assembly, is “how we can catalyze this shift, by creating the right incentives and enabling environments so that progressively more private actors orient their business in the direction of the world’s sustainable development needs.”

In recent years, “blending” has become a common term in development finance. OECD refers to blended finance as the strategic use of development finance and philanthropic funds to mobilize private capital flows to emerging and frontier markets. How does blended finance work for sustainable development? Take water and sanitation as an example. Every year millions of people, most of them children, die from diseases associated with inadequate water supply, sanitation and hygiene. SDG 6 is dedicated to achieving clean and accessible water for all while addressing issues of water quality and scarcity. According to the World Health Organization (WHO), water and sanitation official aid commitments have declined since 2012 from US$ 10.4 billion to US$ 8.2 billion in 2015. World Bank’s Water and Sanitation Program indicated that additional investment in the sector needed through 2030 will exceed US$1.7 trillion. Financing water and sanitation in developing countries is primarily based on subsidized public funds which are not sufficient to achieve the scale envisioned in the SDGs. Blended finance can be an effective approach to mobilize commercial funds including commercial bank loans, bonds, and equity.

A case study from World Bank shows how different forms of finance were synthesized to support domestic private water operators in Cambodia. In this case, a combination of non-sovereign concessional lending, guarantees, grants, and technical assistance has been used to leverage local commercial finance and equity investments so as to accelerate access to piped water supply. As of July 2016, a total of US$8.7 million loan had been requested by 32 eligible projects. By the end of this year, it is expected that almost 45,000 households will benefit from water service improvements.

To date, blended finance has not been widely applied in key development sectors including water and sanitation. A report from Oxfam identified several constraints with blending. For example, blended finance is often used in middle-income countries and not necessarily pro-poor. In addition, transparency, accountability and stakeholder participation are also key factors for all actors. Continued efforts are needed to further study the effectiveness of blended finance on a case-by-case basis.

Cooperation across agencies is essential to financing for SDGs.  This month, the UN held a high-level SDG action event “SDG Financing Lab”. As emphasized in the event, “an exponential transformation in the global financial system will be required if we are to achieve the SDGs…We must tap into all sources of funding”. In this regard, blended finance can be a key stepping stone to shifting the development finance system to achieve sustainable development results.


Read more:

Trending: blending

There’s a $2.5 trillion development investment gap. Blended finance could plug it

Achieving universal access to water and sanitation by 2030 – how can blended finance help?

Blended Finance Vol. 1: A Primer for Development Finance and Philanthropic Funders

Oxfam: Blended finance: what it is, how it works and how it is used


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