An overview of blending as a financing option for development

1. An overview of blending
Submitted as final assignment for “Financing for
Development” Massive Open Online Course
(MOOC) offered by World Bank Group
Rohan Kumar Ramayad

3. Introduction

4. Introduction
Watch the video Blended Finance |
The Road to Addis and Beyond at
https://youtu.be/Bc0g7HspRw4

5. Definition

6. Definition
 Blending refers the combination of
grant with loans or equity from public
and private financiers.

7. Definition
 Blending refers the combination of
grant with loans or equity from public
and private financiers.
Grants
Loans
or
Equity
Blending

9. Types of Blended Finance:

10. Types of Blended Finance:
Mustapha et al (2014) identifies the
following forms of blended finance:

11. Types of Blended Finance:
Mustapha et al (2014) identifies the
following forms of blended finance:
 Direct grants

12. Types of Blended Finance:
Mustapha et al (2014) identifies the
following forms of blended finance:
 Direct grants
 Conditionality/performance-based grants

13. Types of Blended Finance:
Mustapha et al (2014) identifies the
following forms of blended finance:
 Direct grants
 Conditionality/performance-based grants
 Interest Rate Subsidy

14. Types of Blended Finance:
Mustapha et al (2014) identifies the
following forms of blended finance:
 Direct grants
 Conditionality/performance-based grants
 Interest Rate Subsidy
 Guarantee/risk-sharing products

15. Types of Blended Finance:
Mustapha et al (2014) identifies the
following forms of blended finance:
 Direct grants
 Conditionality/performance-based grants
 Interest Rate Subsidy
 Guarantee/risk-sharing products
 Structured finance − first loss financing

16. Types of Blended Finance:
Mustapha et al (2014) identifies the
following forms of blended finance:
 Direct grants
 Conditionality/performance-based grants
 Interest Rate Subsidy
 Guarantee/risk-sharing products
 Structured finance − first loss financing
 Technical assistance

17. Types of Blended Finance:
Mustapha et al (2014) identifies the
following forms of blended finance:
 Direct grants
 Conditionality/performance-based grants
 Interest Rate Subsidy
 Guarantee/risk-sharing products
 Structured finance − first loss financing
 Technical assistance
 Risk capital

19. Examples of blending facilities:

20. Examples of blending facilities:
 Accelerated Co-financing Facility for Africa
(ACFA)

21. Examples of blending facilities:
 Accelerated Co-financing Facility for Africa
(ACFA)
 EU-Africa Infrastructure Trust Fund

22. Examples of blending facilities:
 Accelerated Co-financing Facility for Africa
(ACFA)
 EU-Africa Infrastructure Trust Fund
 Global Index Insurance Facility (GIIF)

23. Examples of blending facilities:
 Accelerated Co-financing Facility for Africa (ACFA)
 EU-Africa Infrastructure Trust Fund
 Global Index Insurance Facility (GIIF)
 MED 5P Initiative

24. Examples of blending facilities:
 Accelerated Co-financing Facility for Africa (ACFA)
 EU-Africa Infrastructure Trust Fund
 Global Index Insurance Facility (GIIF)
 MED 5P Initiative
 Neighborhood Investment Facility (NIF)

25. Examples of blending facilities:
 Accelerated Co-financing Facility for Africa (ACFA)
 EU-Africa Infrastructure Trust Fund
 Global Index Insurance Facility (GIIF)
 MED 5P Initiative
 Neighborhood Investment Facility (NIF)
 Public-Private Infrastructure Advisory Facility (PPIAF)

26. Examples of blending facilities:
 Accelerated Co-financing Facility for Africa (ACFA)
 EU-Africa Infrastructure Trust Fund
 Global Index Insurance Facility (GIIF)
 MED 5P Initiative
 Neighborhood Investment Facility (NIF)
 Public-Private Infrastructure Advisory Facility (PPIAF)
 Western Balkans Investment Framework (WBIF)

27. Examples of blending facilities:
 Accelerated Co-financing Facility for Africa (ACFA)
 EU-Africa Infrastructure Trust Fund
 Global Index Insurance Facility (GIIF)
 MED 5P Initiative
 Neighborhood Investment Facility (NIF)
 Public-Private Infrastructure Advisory Facility (PPIAF)
 Western Balkans Investment Framework (WBIF)
 Latin America Investment Facility (LAIF)

28. Examples of blending facilities:
 Accelerated Co-financing Facility for Africa (ACFA)
 EU-Africa Infrastructure Trust Fund
 Global Index Insurance Facility (GIIF)
 MED 5P Initiative
 Neighborhood Investment Facility (NIF)
 Public-Private Infrastructure Advisory Facility (PPIAF)
 Western Balkans Investment Framework (WBIF)
 Latin America Investment Facility (LAIF)
 Investment facility for Central Asia (IFCA)

29. Examples of blending facilities:
 Accelerated Co-financing Facility for Africa (ACFA)
 EU-Africa Infrastructure Trust Fund
 Global Index Insurance Facility (GIIF)
 MED 5P Initiative
 Neighborhood Investment Facility (NIF)
 Public-Private Infrastructure Advisory Facility (PPIAF)
 Western Balkans Investment Framework (WBIF)
 Latin America Investment Facility (LAIF)
 Investment facility for Central Asia (IFCA)
 Caribbean Investment Facility (CIF)

31. Discussion on blending in marign of
European Development Days in 2013

32. Discussion on blending in marign of
European Development Days in 2013
Watch the video below of Bruno
Wenn, the chairman of EDFI, the
Association of European Development
Finance Institutions on blending:

33. Discussion on blending in marign of
European Development Days in 2013
Watch the video below of Bruno
Wenn, the chairman of EDFI, the
Association of European Development
Finance Institutions on blending:
https://youtu.be/ZDOM7-fY8BI

34. Support for blending:

35. Support for blending:
 The need to mobilise additional resources for development and
global public goods

36. Support for blending:
 The need to mobilise additional resources for development and
global public goods
 The prospect of closing the financial gap, for projects that could not
be wholly financed through loans only

37. Support for blending:
 The need to mobilise additional resources for development and global public
goods
 The prospect of closing the financial gap, for projects that could not be wholly
financed through loans only
 The possibility of improving the development impact of the investment,
through the grant element as complementary funding

38. Support for blending:
 The need to mobilise additional resources for development and global public
goods
 The prospect of closing the financial gap, for projects that could not be wholly
financed through loans only
 The possibility of improving the development impact of the investment,
through the grant element as complementary funding
 The objective of reducing the potential debt burden resulting from the
investment, enhancing long term public sector borrowing
capacity/sustainability

39. Support for blending:
 The need to mobilise additional resources for development and global public
goods
 The prospect of closing the financial gap, for projects that could not be wholly
financed through loans only
 The possibility of improving the development impact of the investment,
through the grant element as complementary funding
 The objective of reducing the potential debt burden resulting from the
investment, enhancing long term public sector borrowing
capacity/sustainability
 Economic crises and increased budget constraints on donors such that
leveraging developing financing through blending is often perceived as a
means to partly address the requirement “to do more with less”

40. Support for blending:
 The need to mobilise additional resources for development and global public
goods
 The prospect of closing the financial gap, for projects that could not be wholly
financed through loans only
 The possibility of improving the development impact of the investment,
through the grant element as complementary funding
 The objective of reducing the potential debt burden resulting from the
investment, enhancing long term public sector borrowing
capacity/sustainability
 Economic crises and increased budget constraints on donors such that
leveraging developing financing through blending is often perceived as a
means to partly address the requirement “to do more with less”
 The potential for enhancing the partner country governments’ ownership of
the development assistance due to the loan component

41. Support for blending:
 The need to mobilise additional resources for development and global public
goods
 The prospect of closing the financial gap, for projects that could not be wholly
financed through loans only
 The possibility of improving the development impact of the investment,
through the grant element as complementary funding
 The objective of reducing the potential debt burden resulting from the
investment, enhancing long term public sector borrowing
capacity/sustainability
 Economic crises and increased budget constraints on donors such that
leveraging developing financing through blending is often perceived as a
means to partly address the requirement “to do more with less”
 The potential for enhancing the partner country governments’ ownership of
the development assistance due to the loan component
 Potential economies of scale generated as a result of better pooling of
resources and coordination among development financiers

43. Concerns about blending:

44. Concerns about blending:
 The risk of financial incentives outweighing
development principles

45. Concerns about blending:
 The risk of financial incentives outweighing development
principles
 The risk to differentiate in favour of middle-income countries
against poorer countries

46. Concerns about blending:
 The risk of financial incentives outweighing development
principles
 The risk to differentiate in favour of middle-income countries
against poorer countries
 The risk of crowding out private financing and distorting
markets

47. Concerns about blending:
 The risk of financial incentives outweighing development
principles
 The risk to differentiate in favour of middle-income countries
against poorer countries
 The risk of crowding out private financing and distorting
markets
 The risk of providing insufficient attention to transparency and
accountability

48. Concerns about blending:
 The risk of financial incentives outweighing development
principles
 The risk to differentiate in favour of middle-income countries
against poorer countries
 The risk of crowding out private financing and distorting
markets
 The risk of providing insufficient attention to transparency and
accountability
 The risk of unclear or ill-defined monitoring and evaluation
methods

49. Concerns about blending:
 The risk of financial incentives outweighing development
principles
 The risk to differentiate in favour of middle-income countries
against poorer countries
 The risk of crowding out private financing and distorting
markets
 The risk of providing insufficient attention to transparency and
accountability
 The risk of unclear or ill-defined monitoring and evaluation
methods
 The debt risks for developing countries of increasing lending.

51. Suggestion:

52. Suggestion:
ETTG report (2011) suggests that in order to guarantee
an efficient allocation and implementation of blended
finance, it is important to:

53. Suggestion:
ETTG report (2011) suggests that in order to guarantee
an efficient allocation and implementation of blended
finance, it is important to:
◦ reduce the complexity of blending mechanisms, for
instance by clearly assigning responsibilities
(accountability) in order to avoid transparency issues

54. Suggestion:
ETTG report (2011) suggests that in order to guarantee
an efficient allocation and implementation of blended
finance, it is important to:
◦ reduce the complexity of blending mechanisms, for
instance by clearly assigning responsibilities
(accountability) in order to avoid transparency issues
◦ carefully assess the impact that mixing a loan with a grant
element could have on a recipient country in order to avoid
crowding-out other potential sources of funding

55. Suggestion:
ETTG report (2011) suggests that in order to guarantee
an efficient allocation and implementation of blended
finance, it is important to:
◦ reduce the complexity of blending mechanisms, for
instance by clearly assigning responsibilities
(accountability) in order to avoid transparency issues
◦ carefully assess the impact that mixing a loan with a grant
element could have on a recipient country in order to avoid
crowding-out other potential sources of funding
◦ define the percentage of the grant element in such a way
as to deter recipient countries from imprudent borrowing

56. Suggestion:
ETTG report (2011) suggests that in order to guarantee an
efficient allocation and implementation of blended finance, it is
important to:
◦ reduce the complexity of blending mechanisms, for instance by
clearly assigning responsibilities (accountability) in order to avoid
transparency issues
◦ carefully assess the impact that mixing a loan with a grant
element could have on a recipient country in order to avoid
crowding-out other potential sources of funding
◦ define the percentage of the grant element in such a way as to
deter recipient countries from imprudent borrowing
◦ reach agreement among donors on requirements to provide funds
in a timely fashion and avoid delaying decision-making processes

57. Source:
 http://www.worldbank.org/mdgs/documents/MDBs-IMF-
DevFin-Solutions-11-3-15.pdf
 ETTG (2011) Aid for Trade and Blended Finance. Aid for
Trade Case Study submission to OECD/ WTO. London:
Overseas Development Institute.
 http://ecdpm.org/wp-content/uploads/2015-European-
Report-on-Development-English.pdf
 http://ecdpm.org/wp-content/uploads/2013/11/Blending-
Loans-Grants-Blend-Not-Blend.pdf
 http://www.evidenceondemand.info/topic-guide-
blended-finance-for-infrastructure-and-low-carbon-
development-full-report