ADB, other DFIs leveraged blended concessional finance to support $ 9 b in emerging markets

The Asian Development Bank (ADB), together with other development finance institutions (DFIs)1 last year, used about $1.2 billion in concessional funds to support nearly $9 billion in private investment projects in emerging markets.  

These projects included $3.9 billion of commercial financing from DFIs as well as $3.3 billion from private lenders and investors, according to a new DFI report that highlights how blended concessional finance can be key to mobilising private investment in challenging environments.

The 2018 Joint Report of the DFI Working Group on Blended Concessional Finance for Private Sector Projects offers an extensive set of data, including geographies, sectors, and volumes of private finance mobilised, on the extent to which blended concessional finance was used by DFIs, including ADB, during 2017.

Blended concessional finance involves combining concessional funds with private sector and DFI commercial financing and it allows DFIs to support private sector investment in order for investors and lenders to provide financing to projects that they would normally not be able to, particularly in higher-risk countries. Further to the Enhanced Blended Concessional Finance Principles for DFI Private Sector Operations, DFIs use concessional funds to the minimum extent needed and for the purpose of crowding in private sector investment into projects that present higher risks stemming from market failures, demonstration effects in pioneering projects, important affordability considerations, or other economic factors.

The report highlights that projects financed by DFIs are increasingly leveraging this type of financing to channel private investment into challenging markets particularly in low- and lower-middle-income countries.  In 2017, 80% of ADB’s blended concessional finance transactions were in lower-middle-income countries, including a new geothermal project that will pioneer the use of dual flash geothermal technology in Indonesia, which increases resource utilisation.

The report also notes best practices and improvements in governance, decision-making processes, documentation, training, and effective monitoring to ensure concessional funds are used efficiently.

The report was released on the sidelines of the Tri Hita Karana (THK) Forum on Sustainable Development in Bali, where attendees endorsed a complementary program called the “Tri Hita Karana Roadmap for Blended Finance.” The THK Roadmap, led by the Organisation for Economic Co-operations and Development (OECD), covers a broader range of public/private support for private sector projects beyond the use of concessional finance and is fully consistent with the DFI Enhanced Principles. The DFI Working Group contributed to and supports the THK Roadmap, and sees it as providing important shared values for all stakeholders engaged in supporting private sector projects for development and achieving the Sustainable Development Goals (SDGs).

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 67 members—48 from the region. In 2017, ADB operations totalled $32.2 billion, including $11.9 billion in co-financing.

Footnote

1MDBs and DFIs include ADB, AFDB, AIIB, EBRD, EDFI, EIB, IDBG, IFC, and ICD.