Blended Finance as a powerful tool in Development Finance
Sep 14, 2023
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Kusi Hornberger, an author focused on scaling impact in development finance, joins Joan Larrea, CEO of Convergence, to discuss the transformative power of blended finance in development. They dive into how blended finance can unlock investments for the Sustainable Development Goals and tackle challenges faced by donor agencies. Insights on navigating risk in emerging markets and the essential role of intermediaries in connecting SMEs to funding highlight the complexity and necessity of strategic financing in creating sustainable impact.
Blended finance strategically combines concessional funding with private sector investment, effectively addressing financing gaps in sustainable development goals.
Kusi Hornberger emphasizes the need for democratizing knowledge in development finance to accelerate progress and enhance stakeholder engagement.
Deep dives
Introduction to Blended Finance
Development finance, particularly blended finance, has evolved significantly since the Bretton Woods Agreement, aimed at effectively addressing the financial needs of vulnerable populations. This approach diverges from traditional project financing seen in developed countries by utilizing various tools and instruments tailored for specific contexts. Experts have outlined that blended finance strategically combines concessional, or catalytic, funding with private sector investment to achieve greater impact on sustainable development goals. The podcast emphasizes that blended finance can effectively fill existing financing gaps that impede progress toward these critical global objectives.
Koussi Hornberger's Insights
Koussi Hornberger, a leading expert in blended finance, shared his motivations for authoring his book 'Scaling Impact,' which was influenced by his desire to accelerate progress on sustainable development goals (SDGs). Throughout his experiences in advisory projects, he recognized that significant financing gaps exist and felt a personal frustration regarding the slow pace of progress in development finance. By publishing his knowledge, Hornberger aims to democratize the insights he gained from working with various stakeholders in the field, thereby fostering broader understanding and action. He highlighted the importance of sharing knowledge, contrasting this approach with typical consultancy practices that tend to protect intellectual property.
Understanding Catalytic and Blended Finance
The distinction between catalytic capital and blended finance is crucial in understanding their roles in development finance. Catalytic capital is characterized by accepting high risk or offering concessional returns to facilitate transactions, whereas blended finance requires that there be a blend of different funding sources specifically for an investment opportunity. Joan, another expert, elaborated on this by stating that not all catalytic capital qualifies as blended finance if it does not attract additional outside investment. They emphasized the necessity for development institutions to be more catalytic with their approaches, ensuring that blended finance leads to demonstrable market transformations and supports sustainable practices.
Challenges and Future Directions
While blended finance has the potential to drive significant impact, there are several barriers affecting its scalability, particularly in complex regions like Haiti. Both experts discussed the challenge of effectively engaging with local SMEs, which often struggle to access blended finance due to system inefficiencies. They noted that successful blended finance often occurs at an intermediary level, providing necessary capital to local projects indirectly. To better harness the power of blended finance, they suggested that stakeholders prioritize a clearer understanding of their roles and the impacts of financial models, along with a focus on accurate risk pricing to foster more investment in emerging markets.
Development Finance has always needed to evolve with the needs of the time, but where is it succeeding or failing? I am joined by Dalburg’s Kusi Hornberger, author of Scaling Impact and Convergence CEO Joan Larrea to talk about how Development Finance can play a better role in driving impact and how blended finance, in particular, can be a useful tool in getting more projects financed in the developing world.
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