EBRD and other Development Finance Institutions increase use of blended finance
A new report by international Development Finance Institutions (DFIs) shows for the first time the scale of concessional blended finance to support transformative investments in challenging markets and deploy private sector funds to achieve the United Nation’s 2030 Agenda for Sustainability Development and the Sustainable Development Goals.
Mattia Romani, EBRD Managing Director, Economics, Policy and Governance, said: “Blending concessional and commercial finance can unlock untapped investment into sustainable development, especially from the private sector, in the spirit of the ‘Billions to Trillions’ agenda. Working together towards this goal we have improved our coordination and effectiveness. As today’s report demonstrates this is a significant step forward and at the same time an appeal to intensify our efforts.”
According to the joint report “Blended Concessional Finance for Private Sector Projects” by the DFI Working Group, in 2017 more than US$ 9 billion of private investment projects were supported by about US$ 1.2 billion in concessional funds channelled through 23 multilateral and bilateral DFIs. These institutions invested about US$ 3.9 billion of their own commercial funds in these projects. The remaining finance of more than US$ 3.3 billion came largely from private lenders and investors.
The EBRD works in close coordination with its donor partners, clients and other development institutions to ensure that concessional funds – including co-investment grants and guarantees, amongst other instruments – are blended with its own commercial finance and private sector investment in line with the Bank’s mandate to foster transition to sustainable market economies. In 2017, almost 70 per cent of blended concessional finance in private sector operations targeted green growth.
The joint DFI Working Group report showed that senior debt and equity were the most common concessional instruments used by the reporting DFIs. The predominant sectors were infrastructure, in many cases for climate projects, banking and finance, predominantly to support small and medium-sized enterprises (SMEs).
The projects financed in 2017 illustrate that blended concessional finance is a critical tool for developing private sector markets, fostering innovation and engaging private finance in some of the most challenging settings. This was highlighted by several blended concessional finance projects in 2017, including pioneering renewable energy projects, the financing of new technologies, and innovative projects to mobilise finance for SME development.
The DFI report also highlights the extensive work the institutions have undertaken to ensure that they use concessional funds effectively and efficiently. In 2017, they adopted a set of five principles (the DFI Enhanced Principles) for using concessional resources. These principles emphasise the need to minimise the amount of concessionality in projects, and ensure that projects can eventually operate in a sector without subsidy. Since then, the DFIs have made progress in developing governance and approval processes, operating guidelines and training programmes for the effective use of the DFI Enhanced Principles throughout their organisations.
The release of the report was announced at the Tri Hita Karana (THK) Forum on Sustainable Development in Bali where many attendees endorsed a programme to complement the DFI work, called the “Tri Hita Karana Roadmap for Blended Finance.” This roadmap, the development of which was led by the OECD, covers a broader range of public or private support for private sector projects beyond the use of concessional finance, but fully consistent with the DFI Principles. The DFI Working Group contributed to and supports the THK Roadmap. The Group sees it as providing important shared values and a common narrative for all stakeholders engaged in supporting private sector projects for development and in helping reach the Sustainable Development Goals
The EBRD was established in 1991 to strengthen the private sector in the economies where it invests. In its operations the Bank is guided by the principle of mobilising the private sector (“additionality”) and by the requirements that its investment must be commercially viable (“sound banking”) and contribute to economic reform (“transition impact”). To date, the EBRD has invested more than €125 billion through more than 5,000 projects in Europe, Asia and Africa.