Making blended finance work for the Sustainable Development Goals

Foreword
Acknowledgements
Reader’s guide
	Structure and purpose of the Blended Finance Guidance
	Target audience
	How to make use of the Guidance
Principle 1: Anchor blended finance use to a development rationale
	Policy guidance
		Sub-principle 1A - Use development finance in blended finance as a driver to maximise development outcomes and impact
			Link blended finance to overarching development objectives in line with the 2030 Agenda and climate objectives
			Align the objectives of blended finance to local policy priorities
			Set clear and measurable development targets for blended finance funds and facilities
			Focus blended finance on sectors where it can achieve maximum development impact on people and the planet
			Deploy blended finance when this is more effective than other financing approaches within the broader development co-operation strategy
		Sub-principle 1B - Define development objectives and expected results as the basis for deploying development finance
			Set clear, mutually agreed and measurable development objectives with a coherent narrative
			Balance donors’ and investors’ expectations on development outcomes in relation to  financial risks and returns
			The development objectives and desired results should determine the selection of partners
			Build institutional incentive structures that promote public-private co-operation and balanced sharing of risks and returns
			Develop the internal skills and capacities necessary in the public sector o effectively engage with private sector actors in blended finance
		Sub-principle 1C - Demonstrate a commitment to high quality
			Encourage integrating environmental, social and governance (ESG) factors when selecting blended finance projects
			Apply the highest level of responsible business conduct
			Guarantee commitment to quality through transparency
	Checklist
	Example of good practices
Principle 2: Design blended finance to increase the mobilisation of commercial finance
	Policy guidance
		Sub-principle 2A - Ensure additionality for crowding in commercial finance
			Blended finance interventions should have both developmental as well as financial additionality
			Additionality needs to be ensured to minimise market distortion and prevent crowding out of private investment through blended finance
			Ensuring additionality requires assessing it along both the development and financial dimensions and encouraging harmonised approaches
		Sub-principle 2B - Seek leverage based on context and conditions
			The design of blended finance transactions needs to be anchored in the transaction-specific development objective, taking into account context-specific drivers
		Sub-principle 2C - Deploy blended finance to address market failures, while minimising the use of concessionality
			Donors should identify the root causes and source of the market failure that the blended finance programme is to address
			Conduct an analysis of the drivers of concessionality in the context of operation
			Enable equal access to donors’ concessional funds
			Engage in a continuous dialogue with other donors to harmonise approaches on concessionality
		Sub-principle 2D - Focus on commercial sustainability
			Develop policy, sector and investment frameworks in parallel to blended finance
			Facilitate local capital market development, with a focus on providing access to finance for underserved population groups
			Incorporate exit strategies in blended finance, both at the level of the transaction and at market level
	Checklist
	Examples of good practices
Principle 3: Tailor blended finance to the local context
	Policy guidance
		Sub-principle 3A - Support local development priorities
			Ensure in-depth stakeholder consultation
			Promote country ownership
			Understand local circumstances for desirable intervention
			Understanding the local context is necessary for additionality
			Ensure representation and effective communication on the ground
		Sub-principle 3B - Ensure consistency of blended finance with the aim of local financial market development
			Establish engagement and capacity building processes with local financial institutions
			Focus on crowding in domestic finance
			Promote local currency financing
		Sub-principle 3C - Use blended finance alongside efforts to promote a sound enabling environment
			Develop approaches resulting in demonstration effects and market creation
			Foster policy reforms addressing obstacles faced by private investors in the local context
	Checklist
	Examples of good practices
Principle 4: Focus on effective partnering for blended finance
	Policy guidance
		Sub-principle 4A - Engage each party on the basis of its respective mandate
			When engaging in blended finance, understand the mandates, objectives and risk-return profiles of each actor involved
		Sub-principle 4B - Allocate risks in a targeted, balanced and sustainable manner
			Understand and assess the different types of underlying country-, context- and sector-specific risks
			At each level of blending, different methodologies for risk assessment should be applied as a basis to determine the optimal blending instrument and concessionality level
			Bring in local entities to improve risk allocation in blended finance
			Adjust the mix between concessional and commercial finance as risks evolve along different stages of the project life cycle
			Strengthen capacity in donor agencies to assess and verify balanced risk allocation in blended finance
		Sub-principle 4C - Aim for scalability
			Promote transparency and data availability as well as knowledge sharing
			Set incentives for scaling up through appropriate and targeted mobilisation objectives for MDBs and DFIs
			Promote whole-of-government approaches and improved collaboration and co-ordination between MDBs and DFIs
			Make sufficient funding available for early stage project preparation to accelerate the creation of a pipeline of bankable projects and to create an enabling environment
			Encourage the replication of successful blended finance instruments as well as the development of new instruments that further enable standardisation and scale
	Checklist
	Examples of good practices
Principle 5: Monitor blended finance for transparency and results
	Policy guidance
		Sub-principle 5A - Agree on performance and result metrics from the start
			Adopt a theory of change for a blended finance mechanism as a whole
			Reach initial agreement on reporting for results using a common set of key performance indicators
			Adopt a common monitoring and evaluation framework
		Sub-principle 5B - Track financial flows, commercial performance and development results
			Ensure more financial transparency, while avoiding the pitfalls
			Promote better reporting on development results, improving data collection and quality assurance processes
		Sub-principle 5C - Dedicate appropriate resources for monitoring and evaluation
			Empower the internal capacity for learning and accountability
			Promote collaboration as integral to the partnership
			Apply differentiated approaches to monitoring and evaluation
		Sub-principle 5D - Ensure public transparency and accountability on blended finance operations
			Establish the enabling conditions for transparency
			Enable policy learning through accumulation of evidence and lessons learned from monitoring and evaluation
	Checklist
	Examples of good practices
		Annex A. Core concepts
Blended Finance Guidance.pdf
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