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Principle 4

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.

4A - Enable each party to engage on the basis of their respective development or commercial mandate, while respecting the other’s mandate.

All parties need to have a stake in the success of the transaction. The objective of blended finance is not to change the motivation of commercial or development actors, but to create opportunities for investments that yield both development and commercial returns, and thus that can be supported by commercial finance. Conversely, development actors should not compromise on their standards – as well as relevant international standards – for the design, terms and execution of interventions.

4B - Allocate risks in a targeted, balanced and sustainable manner.

Mobilising commercial finance in a sustainable manner requires addressing the riskreturn profile of a transaction through balanced and sustainable risk allocation between development and commercial parties, whether through concessional or non-concessional instruments. The ability of development finance providers to effectively and efficiently allocate, take and manage risk is therefore central to blended finance.

4C - Aim for scalability.

Both the magnitude of development financing needs and its relevance for commercial financing, make scalability an important factor in ensuring blended finance reaches its potential. Development finance providers should collaborate through standardisation and harmonisation, including on programme approaches, where possible, so as to encourage the increase in scale and scalability of blended finance. Whereas tailor-made transactions will continue to be required, notably in more challenging markets and in proof of concept investments, development finance providers should share lessons learned and best practices in order to support scalability over time in these markets or sectors, wherever possible.

« IFC recognises the importance of effective policy settings to scale up and mainstream blended finance and therefore welcomes the OECD DAC Blended Finance Principles, which are complementary to the Enhanced Principles that IFC and other DFIs have adopted in the context of private sector operations. »

NENA STOILJKOVIC, VICE PRESIDENT OF BLENDED FINANCE AND PARTNERSHIPS, IFC

This guidance is a collaborative effort. We encourage you to send us your questions and comments at: DCD.BlendedFinance@oecd.org