OECD BLENDED FINANCE PRINCIPLES

Webinar Paris, 11 December 2017 Paul Horrocks and Irene Basile

Private Finance for Sustainable Development

Development Co-operation Directorate, OECD

• OECD work on Private Finance for Sustainable Development

• OECD Blended Finance Process

• Blended Finance: OECD’s definition

• OECD DAC Blended Finance Principles

• Questions?

Agenda

OECD WORK ON PRIVATE FINANCE FOR SUSTAINABLE

DEVELOPMENT

• The vision underpinning the 2030 Agenda is broad and ambitious, calling for an equally broad and ambitious financing strategy

• Indispensable role of Official Development Assistance (ODA) in financing the Sustainable Development Goals (SDGs)

• International community acknowledged the need for significant additional development finance – and accorded a prominent place to private sector participation

• The OECD Development Assistance Committee (DAC) agreed in 2016 to develop ‘an inclusive, targeted, results-oriented work programme’ on blended finance

The rationale for blended finance

OECD Development Cooperation work

Policy research and advice

Tracking

Private Sector Investment

Social Impact Investment

Blended Finance

Green Investment

Mobilisation ODA reform, incl. TOSSD

Private Philanthropy

Increasing private capital flows to

developing countries

Source: OECD forthcoming based on OECD statistics and World Bank remittances data

-

200.00

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

USD

Bill

ion

Official Development Assistance Other Official Flows Private Grants Private Capital Fows, including FDI Personal Remittances

US

D b

illi

on

cu

rren

t p

rice

s

Increasing interest in blended finance

No. of blended finance facilities launched

0

5

10

15

20

25

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: OECD and EDFI surveys in OECD (forthcoming)

…not reaching the countries most in need

Unallocated, 11.3

LDCs, 5.5

Other LICs, 2.2

LMICs, 27.4

UMICs, 34.6

Guarantees Syndicated loans Shares in CIVs Direct investment in companies Credit lines

Middle-income countries (77%)

Private Finance mobilised in 2012-15, USD billion

Source: 2016 OECD-DAC Survey

OECD BLENDED FINANCE PROCESS

2017: Three major processes shaping

the blended finance market

Operators

Donors

Private sector

OECD DAC: Blended Finance Principles for unlocking

commercial finance

BSDC: Blended Finance

Recommendations

EDFI/IFC/EBRD: Enhanced guidance on

use of concessional finance in private

sector ops.

Getting blended finance right

A highly participatory approach

Scoping Survey

Endorsement at

DAC HLM

Oct. 30th

Informal discussion

July 27th Webinar, Sept. 7th

Discussion at DAC

Sept. 29th

DAC External stakeholders (Southern Partners,

MDBs, DFIs, Private sector, CSOs)

1st Senior Advisory

Group, May 5th

2nd Senior Advisory

Group, July 7th

Coordination meeting,

Sept. 11th

3rd Senior Advisory

Group, Sept. 12th

30

participants

16 participants,

12 countries

36 answers

(30 DAC+6 MDBs)

23 external

participants

192

participants

47

participants

44

participants

Written consultation

20

comments

17

comments

10

comments

The OECD Senior Advisory Group

BLENDED FINANCE: OECD DEFINITION

The OECD definition

‘The strategic use of development finance for the mobilisation of additional finance towards the SDGs in developing countries’

where additional finance refers primarily to commercial finance not currently addressing development objectives

• Blended finance is deployed with the aim of 'increasing the pie' of financing for development

• Development finance catalyses the additional investment

• Finance is distinguished by purpose rather than source

• Concessionality is not a pre-requisite for blending

• Blended finance is closely related to but does not replace private sector development

The Building Blocks

Financial instruments at play

OECD DAC BLENDED FINANCE PRINCIPLES

OECD Blended Finance Principles for

unlocking commercial finance for the SDGs

PRINCIPLE 1: Anchor Blended Finance use to a Development Rationale

For DAC Members To complement

private & DFI work To enable more

donor engagement

To help with broader development

constituency support

PRINCIPLE 2: Increase the mobilisation of Commercial Finance

PRINCIPLE 3: Tailor Blended Finance to the Local Context

PRINCIPLE 4: Focus on Effective Partnering for Blended Finance

PRINCIPLE 5: Monitor Blended Finance for Transparency and Results

Principle I

Anchor Blended Finance use to a Development Rationale

All development finance interventions, including Blended Finance activities, are based on the mandate of development finance providers' to support developing countries in achieving social, economic and environmentally sustainable development.

1.a) Use development finance in Blended Finance as a driver to maximise development outcomes and impact.

1.b) Define development objectives and expected results as the basis for deploying development finance.

1.c) Demonstrate a commitment to high quality.

Principle II

Design Blended Finance to increase the mobilisation of Commercial Finance

Development Finance in Blended Finance should facilitate the unlocking of commercial finance to optimise total financing directed towards development outcomes.

2.a) Ensure additionality for crowding in commercial finance.

2.b) Seek leverage based on context and conditions.

2.c) Deploy Blended Finance to address market failures, while minimising the use of concessionality.

2.d) Focus on commercial sustainability.

Principle III

Tailor Blended Finance to Local Context

Development finance should be deployed to ensure that Blended Finance supports local development needs, priorities and capacities, in a way that is consistent with, and where possible contributes to, local financial market development.

3.a) Support local development priorities.

3.b) Ensure consistency of Blended Finance with the aim of local financial market development.

3.c) Use Blended Finance alongside efforts to promote a sound enabling environment.

Principle IV

Focus on Effective Partnering for Blended Finance

Blended Finance works if both development and financial objectives can be achieved, with appropriate allocation and sharing of risk between parties, whether commercial or developmental. Development Finance should leverage the complementary motivation of commercial actors, while not compromising on the prevailing standards for development finance deployment.

4.a) Enable each party to engage on the basis of their mandate and obligation, while respecting the other’s mandate.

4.b) Allocate risks in a targeted, balanced and sustainable manner.

4.c) Aim for scalability.

Principle V

Monitor Blended Finance for Transparency and Results

To ensure accountability on the appropriate use and value for money of development finance, Blended Finance operations should be monitored on the basis of clear results frameworks, measuring, reporting and communicating on financial flows, commercial returns as well as development results.

5.a) Agree on performance and result metrics from the start.

5.b) Track financial flows, commercial performance, and development results.

5.c) Dedicate appropriate resources for monitoring and evaluation.

5.d) Ensure public transparency and accountability on Blended Finance operations.

QUESTIONS?

THANK YOU FOR YOUR INTEREST