So often, when there is a conversation about ensuring that developing countries experience the benefits of sustainable development, it tends to focus on a stubborn challenge—the challenge of the SDG financing gap. The investment needed to support SDG achievement in the world’s least developed countries (LDCs) by 2030 is estimated at US$240 billion per year, whereas only US $40 billion was deployed in 2014.

But on June 18, 2019, when UNCDF and the Government of Uganda convened the High-Level Regional Event on Blended Finance: Opportunities and Challenges in East Africa, the conversation expanded well beyond the finance gap. With more than 150 delegates in attendance, the conversation was a rare opportunity to elevate and address critical questions surrounding blended finance; share a lifecycle approach to optimize blended finance projects; and a commitment to putting ideas on blended finance into practice.

Talking at the opening of this event, UNCDF Executive Secretary Judith Karl said: “To be sure, we see the impressive progress being made in Southern and East Africa towards the SDGs.

Still, across the region, there is a need for accelerated progress. Getting the finance piece right is essential to that acceleration. Specifically, we need more risk-taking and changes in the incentives that underpin much of the financing for development architecture if we aim to get more finance to where it’s most needed. And we need to make those changes now, before the structure of the current international financial system further entrenches the inequalities that further marginalize poor and vulnerable countries and communities at risk of being left behind.”

Addressing Critical Questions on Blended Finance—With attendees representing private sector leaders, development finance practitioners and members of academia from the East and Horn of Africa as well as Southern Africa, the High-Level Event was able to bring critical questions surrounding blended finance to the conversation.

One question is how can we get the blended finance balance right without over-subsidizing the private sector? Blended finance relies on concessional finance, and specifically achieving the right amount of concessional finance to de-risk investments and crowd in investors without unduly distorting markets. But how can concessional finance providers ensure that they strike this essential balance?

Another question revolves around public policy. How can we ensure that local and central governments looking to blended finance will also have the necessary policy discussions around public financial management, to ensure that sound, transparent public finance is supporting those blended finance efforts?

But many of the questions focused on how to best ensure that blended finance benefits traditional underserved communities: from rural communities and small-holder farmers, to domestic companies looking to compete for infrastructure projects with foreign companies, to small-and-medium sized enterprises that fall into the “missing middle”—unable to access financing from domestic banks, micro-finance institutions or development and private finance institutions.

Just as important as the answers, it is understanding these critically important questions and challenges that will position stakeholders to make educated decisions about blended finance in the future.

A Lifecycle Approach—The barriers that prevent private finance from reaching least developed countries include general challenges in attracting private capital to smaller less-tested markets, the lack of an enabling environment for blended finance and project-specific challenges. An approach to address these challenges to help catalyze and support blended finance in LDCs was provided by UNCDF during a keynote presentation, focusing on the pipeline, deal, and transition phases.

During the pipeline and project preparation phase, concessional finance providers typically need to spend more time and resources to provide technical assistance and capacity-building support to project stakeholders. More broadly, providers of concessional capital and donors should also help strengthen national capacities in least developed countries to engage effectively on blended transactions.

During the deal design and execution phase, greater concessionality may have to be deployed in LDCs. This may come in the form of a larger amount of concessional finance, more generous terms and pricing and/or the use of multiple concessional instruments. Larger amounts of concessionality can specifically support opportunities for SMEs trapped in the missing middle.

Finally, during the transition to commercial solutions, it should be understood that the phasing-out of concessional support may take longer in LDCs than in other developing countries. The government may also replace official development assistance with domestic public resources to keep a project viable, while needing to carefully assess potential fiscal and sovereign debt repercussions.

As Judith Karl, UNCDF Executive Secretary remarked during the event, “It is important to make sure that governments in the region have in place the right national capacities to design, analyze and structure blended transactions, so that blended risks and rewards are shared fairly between the public and private partners involved and that blended finance does not leave LDCs further behind. Certainly, if blended finance continues to be more widely used, we need to ensure that this does not lead to a decline in the overall share of development finance received by those countries where blending has proved to be more difficult.”

Putting Ideas into Practice—Talking at the closure of the High Level Event, First Deputy Prime Minister of Uganda Rt. Hon. Moses Ali emphasized that Uganda’s development aspirations require concerted efforts of all stakeholders in all areas, including financing for development. The High Level Event concluded with the launch of the Kampala Protocol, a declaration delivered from the Ministry of Local Government for Uganda and the other countries of the region represented at the event. The Kampala Protocol is based on a belief that achieving the SDG requires innovation and deliberate re-orientation of approach of doing business by Governments, private sector and development partners and innovating with alternative financing options. It formally announced the commitment to blended finance in its planning, execution, monitoring and evaluation while advocating for an evidence-based approach shaped and design with active participation of the developing countries.

The Kampala Protocol represents the highest aspiration of UNCDF’s work—to deploy innovative finance approaches that have the potential to successfully crowd-in public and private finance, so that we can create the demonstration effects that develop and transform markets; shift the dynamics of financing towards the local level; and, ultimately, create the system change that helps ensure that we truly leave no one behind.

But the end of the event did not signal the end of the conversation or the collaboration. Initiatives like the Kampala Protocol will ensure that questions and ideas will continue to be shared around blended finance. And all of the partners in attendance can be confident in knowing that UNCDF will remain a thought partner and collaboration partner into the future.