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An overview of blendingSubmitted as final assignment for Financing for Development Massive Open Online Course (MOOC) offered by World Bank GroupRohan Kumar Ramayad

Introduction

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

Definition

DefinitionBlending refers the combination of grant with loans or equity from public and private financiers.

DefinitionBlending refers the combination of grant with loans or equity from public and private financiers.

Types of Blended Finance:

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

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

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

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

Types of Blended Finance:Mustapha et al (2014) identifies the following forms of blended finance:Direct grantsConditionality/performance-based grants Interest Rate SubsidyGuarantee/risk-sharing products

Types of Blended Finance:Mustapha et al (2014) identifies the following forms of blended finance:Direct grantsConditionality/performance-based grants Interest Rate SubsidyGuarantee/risk-sharing products Structured finance first loss financing

Types of Blended Finance:Mustapha et al (2014) identifies the following forms of blended finance:Direct grantsConditionality/performance-based grants Interest Rate SubsidyGuarantee/risk-sharing products Structured finance first loss financingTechnical assistance

Types of Blended Finance:Mustapha et al (2014) identifies the following forms of blended finance:Direct grantsConditionality/performance-based grants Interest Rate SubsidyGuarantee/risk-sharing products Structured finance first loss financingTechnical assistanceRisk capital

Examples of blending facilities:

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

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

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

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

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)

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)

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)

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)

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)

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)

Discussion on blending in marign of European Development Days in 2013

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

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

Support for blending:

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

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

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

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

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

Support for blending:The need to mobilise additional resources for development and global public goodsThe prospect of closing the financial gap, for projects that could not be wholly financed through loans onlyThe possibility of improving the development impact of the investment, through the grant element as complementary fundingThe objective of reducing the potential debt burden resulting from the investment, enhancing long term public sector borrowing capacity/sustainabilityEconomic 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 lessThe potential for enhancing the partner country governments ownership of the development assistance due to the loan component

Support for blending:The need to mobilise additional resources for development and global public goodsThe prospect of closing the financial gap, for projects that could not be wholly financed through loans onlyThe possibility of improving the development impact of the investment, through the grant element as complementary fundingThe objective of reducing the potential debt burden resulting from the investment, enhancing long term public sector borrowing capacity/sustainabilityEconomic 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 lessThe potential for enhancing the partner country governments ownership of the development assistance due to the loan componentPotential economies of scale generated as a result of better pooling of resources and coordination among development financiers

Concerns about blending:

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

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

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

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

Concerns about blending:The risk of financial incentives outweighing development principlesThe risk to differentiate in favour of middle-income countries against poorer countriesThe risk of crowding out private financing and distorting marketsThe risk of providing insufficient attention to transparency and accountabilityThe risk of unclear or ill-defined monitoring and evaluation methods

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

Suggestion:

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

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

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 issuescarefully 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

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 issuescarefully 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 fundingdefine the percentage of the grant element in such a way as to deter recipient countries from imprudent borrowing

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 issuescarefully 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 fundingdefine 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

Source:http://www.worldbank.org/mdgs/documents/MDBs-IMF-DevFin-Solutions-11-3-15.pdfETTG (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