This is a project proposing Blended Financing, as a solution to increase private finance for development in Sierra Leone.

1. Sierra Leone: Increasing Private finance for Development
Recovering from 11years of civil war has not been easy for Sierra Leone. After the end of the war
in 2002, much effort has been focused on reconciliation, nation building and development. But
not much progress have been made, mainly due to inadequate development financing and
government revenue.
Socio-Economic Situation
Based on World Bank estimates, Sierra Leone has a population of 6.453million, with a GDP of
$4.218billion in 2015. The main sources of revenue for the country include agriculture, forest
resources and solid minerals.
More than 60% of the population live in rural areas. Unemployment rate is high, with 70% of the
population living below poverty line. Most of the of the rural dwellers engage in agriculture while
most urban dwellers are employed in the informal sector.
Access to electricity is very poor, at about 1 to 5 percent in urban areas and is non-existent in the
countryside. Installed capacity is around 13Megawatt per million.
Yearly spending on infrastructure is around $134million, which is 10% of GDP. Addressing the
country’s infrastructure challenge will require a sustained expenditure of between $288million
and $475million yearly.

2. Mobilizing Finance for Development
As a country that depends heavily on donors and other related development financing, Sierra
Leonean, must look towards Innovative Financing to complement for its shortages.
Innovative Finance, involves non-conventional mechanisms that support tapping into new
sources of funds and engaging investors, as partners and stakeholders in development. In other
words, mobilizing finance outside ODA and other traditional development financial sources.
Innovative Financing instruments include, Matching Funds, Diaspora Bonds and Blended Finance.
In this project, Blended Finance is proposed as a suitable Innovative Financing instrument, to
increase development financing in Sierra Leone. This will especially be applicable in infrastructure
development, particularly the power sector. Though other instruments can be exploited to
complement each other.
Blended Financing
According to the ReDesigning Development Finance Initiative, of the WEF and OECD; Blended
Finance is the strategic use of development finance and philanthropic funds to mobile private
capital flows to emerging and frontier markets.
Blended finance uses development resources, to leverage trillions of dollars of private capital
available in the market. In the case of Sierra Leone, this is where the IDA Private Sector Window
(PSW), can be put to use.
The PSW is a $2.5billion fund set aside by both IFC and MIGA, with the objective of expanding
private investment in IDA-only countries, with particular focus on Fragile and Conflict affected
States (FCS) of which Sierra Leone is among.
An example of blended finance is the Public Private Partnership (PPP), in which services and
infrastructure (e.g roads, electricity) that are usually public sector provided, are provided by the
private sector under an agreed funding agreement.
Characteristics of Blended Finance
 Leverage: This refers to the use of funds such as the PSW to attract private capital into
development deals.
 Impact: Blended Finance drive social, economic and environment progress.
 Returns: It ensures private investor profit or returns based on current market condition.

3. Using the PSW to Surmount Private Sector Investment Challenges in Sierra Leone
Like in every potential private sector investment, the risk-return condition play a huge role in
decision making. The real and perceived level of risk and return is one major factor that dissuade
private investors (especially foreign ones) from low income and fragile countries.
The PSW can be used to leverage private investment through the following measures:
Bearing Most Risk and Foregoing Returns to the Investor: The IDA PSW, can assume exposure to
greater risk potential instead of allowing it to be borne by the private investor. It can also leverage
returns to the investors in a trade-off for development impact.
Sharing Local Market Knowledge and Experience: PSW can be used as an avenue to share
knowledge and experience to bridge gaps with investors, so as to ensure a successful partnership.
Shaping Policy and Regulatory Reform: This involve taking measures that directly helps the
improvement of local investment climate in Sierra Leone. E.g fiscal and macroeconomic
measures.
Building Local Capacity: This involve specialized financial and technical advisory services, that may
be required to advance local market.
Adopting the PSW to Engage Private Sector Investors in the Sierra Leon’s Power Sector
Advisory and Technical Assistance
This includes giving policy guidance to the government, in order to facilitate an enabling
investment environment in the country. Also it includes project preparation, which involves
coming up with a bankable and an investor ready project.
Risk Financing
The PSW will provide a risk mitigation mechanism and ensure substantial returns for the investor.
This will be mainly in form of guarantee such as on first loss risk.
Market Incentives
This entails giving and investor the power to fix price for services provided at the end of such
project and giving tax holidays.

4. References
Development Initiative (November 2016). Blended Finance: Understanding its Potential for
Agenda 2030 http://www.devinit.org
IDA Resource Mobilization Department (September 2016). Further Details on the Proposed IFC-
MIGA Private Sector Window in IDA18 (pp 1-15).
Natalia Pushak and Vivien Foster: The World BanK (June 2011). Sierra Leone’s Infrastructure: A
continental Perspective (pp 1-7).
The world bank data: Sierra Leone. Retrieved April 2017 from
http://data.worldbank.com/country/sierra-leone
World Economic Forum and OECD: ReDesigning Development Initiative (September 2016).
Blended Finance Vol1: A Primer for Development Finance and Philanthropic Finders (pp 8-18).
World Bank (April 2015). From Billions to Trillions: Transforming Development Finance. Post-2015
Financing for Development: Multilateral Development Finance (pp14-17).
Acronym
FCS - Fragile and Conflict Affected States
GDP - Gross Domestic Product
IDA - International Development Association
IFC - International Finance Corporation
MIGA- Multilateral Investment Guarantee Agency
ODA - Official Development Finance
OECD- Organization for Economic Corporation and Development
PPP - Public Private Partnership
WEF - World Economic Forum