A review of the local approaches and instruments employed by Development Finance Organizations (DFOs)
The African Center for Economic Transformation (ACET) is supporting the Group of 20 (G20) Compact with Africa (CwA) through a series of peer-to-peer learning engagements. The primary theme of this year’s peer learning is blended finance and a number of events are planned to share and learn from good regional and global practice. This note has been prepared as a background knowledge document to inform the peer-to-peer learning events in collaboration with the Organization for Economic Cooperation and Development (OECD), after which it may be published as a research report or technical briefing and will be used for further CwA-related activities.
In the development finance community, blended finance has emerged as a tool to more effectively mobilize commercial capital towards achieving the sustainable development goals (SDGs). This can stimulate impactful investment, quality jobs creation and inclusive economic growth. With a view to promote better practices, the OECD DAC has endorsed key blended finance principles for unlocking commercial finance for the SDGs. One of the five OECD/DAC Principles for Blended Finance (OECD 2018c) relates to the need to anchor blended finance for development to local contexts. In particular, this principle indicates that 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. In particular, blended finance should support local development priorities; ensure consistency of blended finance with the aim of local financial markets development and should be used alongside efforts to promote a sound enabling environment. If these principles are used to guide development finance organizations’ (DFO) engagement in client countries there is a greater likelihood of significant additionality and development impact.
Blended finance is the strategic use of development finance for the mobilization of additional finance towards sustainable development in developing countries (OECD 2018). It serves to reduce perceived risks and/or improve returns, while responding to the increasing importance of working with the private sector to achieve sustainable development. Generally, it aims to mobilize additional finance primarily from commercial sources in order to increase the total volume of finance available for sustainable development, including poverty reduction, reduced inequalities, and climate action.
The research identified numerous areas where DFOs can do more to provide financing in developing countries, particularly taking into account local contexts and conditions. These recommendations are not exhaustive but point
to areas where enhanced efforts can lead to greater development impact.
Insights on Partnering with Local Actors
Blended Financing Insights
Strengthening the Local Dimension