Most developing countries face a chronic deficit of infrastructure constraining economic growth rates, leaving the world’s most vulnerable communities without access to basic services and hampering attempts to achieve broad-based poverty reduction. While over £500 billion is currently invested in infrastructure every year, it has been suggested that annual infrastructure spending will need to more than double by 2020 to meet the development requirements for infrastructure. However, public finance is insufficient and private finance too volatile to bring financing up to the level required. Blended finance enables infrastructure projects to be financed that would otherwise be too costly for a single donor.
In this unique guide to ‘Blended Finance for Infrastructure and Low-Carbon Development’ written for the UK Department for International Development (DFID), Mikaela Gavas, Annalisa Prizzon and Shakira Mustaphawe provide an overview of both the theory and practice of blended finance. It examines the types of financial instruments used in blending, the rationale for the use of blending and how the European Union and the International Finance Corporation, two of the biggest players in infrastructure, have defined, structured and operationalized blending. It also assesses six challenges associated with blended finance. The guide concludes by identifying critical questions donors and Development Finance Institutions could consider when assessing the opportunity of a blended finance package.