The International Finance Corporation (IFC), a member of the World Bank Group, in collaboration with other Development Finance Institutions (DFIs), pulled together about $1.2 billion in concessional funds to support nearly $9 billion in private investment projects in emerging markets, a new DFI report, has revealed.
The report, released by the DFI Working Group on Blended Concessional Finance for Private Sector Projects,
The report was released on the sidelines of the Tri Hita Karana (THK) Forum on Sustainable Development at the 2018 Annual Meetings in Bali, Indonesia, offered an extensive set of data on the extent to which blended concessional finance is used by DFIs—including where and in what sectors, and how much private finance was mobilised.
It reflected data from IFC and 22 other DFIs—including the African Development Bank (AfDB), the Asian Development Bank (AsDB), the Asia Infrastructure Investment Bank (AIIB), the European Bank for Reconstruction and Development (EBRD), European Development Finance Institutions (EDFI), the European Investment Bank (EIB), the Inter-American Development Bank Group (IDBG) and the Islamic Corporation for the Development of the Private Sector (ICD).
IFC’s Vice President, Hans Peter Lankes, said the data in the report was important in helping “us track the effective use of concessional resources,” pointing out that it is critical to use these funds in a responsible and disciplined way.
Last year, the DFI Working Group adopted Enhanced Principles on blended concessional finance to ensure concessional funds were used to the minimum extent needed and to crowd in other investors as much as possible and when justified by market failures, demonstration effects in pioneering projects, important affordability considerations, or other economic factors.
Lankes said: “As we address the opportunities and challenges we face with our partners in the working group, we encourage other partners—including donors—to adopt the Enhanced Principles and join the working group to share best practices in the use of concessional funds.”
Blended concessional finance involves combining concessional funds and commercial financing from DFIs and the private sector. It allows DFIs to support private sector projects beyond what they would normally be able to engage in, particularly in higher-risk countries. For example, the report showed that of the nearly $9 billion in project financing unlocked by blended finance, more than $3.3 billion came from private lenders and investor
DFIs are increasingly leveraging financing of this type to channel private investment into challenging markets—particularly in Sub-Saharan Africa and in low- and lower-middle-income countries. IFC, for example, used blended finance to support more than 40 percent of its operations in lower-income and fragile and conflict-affected areas between July 2016 and June 2017.
The report showed that in 2017 projects financed by DFIs, using concessional finance included innovative renewable energy projects in Africa and the Pacific, new technologies in Latin America and North Africa, innovative projects to mobilize finance for housing, guarantees for financial intermediaries to stimulate small and medium-sized enterprises (SMEs) development, and projects to develop agribusiness.
The report also noted best practices and improvements in governance, decision-making processes, documentation, training, and effective monitoring to ensure concessional funds, are used efficiently.