Excellencies,
Colleagues,

Thank you for inviting me to join you today, and for including in your discussions a dedicated focus in blended finance in the LDCs. And thank you to the OECD – to Jorge, Haje and their team - for being such a great partner to UNCDF.

The timing of your meeting could not be better. I am here in Kampala at a regional event UNCDF is organizing with the government of Uganda. It is examining how blended finance can work to leave no one behind in Southern and East Africa – and is proving to be a rich platform for sharing knowledge and best practice.

The backdrop to this meeting in Uganda is the report UNCDF produced last year on blended finance in LDCs, in collaboration with OECD, Southern Vice, Convergence, and the UN Foundation.

The reason we produced the report was that, as we saw more partners move into the blended finance space, we found ourselves asking: what do we really know about how blended finance is working for LDCs? What are the quantities of those flows? Which sectors are they supporting? What development impact are they having?

No one else was looking at these questions. Since its launch in New York, we have taken that report on the road – and the interest in the report, here in Uganda and elsewhere, is a clear reflection of the appetite for such information and that we need to be focusing a lot more attention on how to make finance work for LDCs.

One of the recommendations in our report’s action agenda was the need to bring LDCs to the decision-making table. I am delighted therefore that we are joined in this conversation by Ambassador Ligoya and Patricia from the Uganda Development Bank. And I am also pleased that Jean-Philippe is joining us, given the pathbreaking work he is doing on blended finance in riskier markets.

Four years into the 2030 Agenda, it is a good time to look at whether we are on track to create the new financing models and pathways that will ensure that we leave no one behind.

We know there is plenty of capital in the global economy to achieve our goals. But we also know that the financing for development architecture is not channeling those resources effectively or at the scale and speed we need to where they are most needed.

LDCs still face enormous financing gaps, and these gaps risk widening.

Our report showed that over 2012-2015, only 7% of private finance mobilized by official development finance benefited LDCs. We are working with OECD on a data update, which suggests that this figure may have declined over 2016-2017.

So despite increasing focus on the international financial architecture, new DFIs, and mobilizing more private capital for the SDGs, evidence so far would indicate that the deal for LDCs, for poor women, and for poor communities is not changing. In short, we risk hardening exclusions between and within countries, rather than overcoming them.

While there is much focus on turning the ‘billions into trillions’, we therefore need to think not just of quantity, but also about quality and how and where those resources are allocated.

What does this mean for our discussion about blended finance? Let me make five points, drawn from our report.

First, we need to align blended finance with the ambition to leave no one behind.

This means we need to ensure that blended finance transactions have clear SDG impact.

We must ensure that blended finance, at a minimum, does not widen disparities – gender, regional, or income – within a country, but in fact helps to tackle them.

It also means we need to think beyond big tickets only. To be sure, blended finance often works well for big infrastructure projects. But we also know that SMEs are engines of job creation that provide opportunities to women and young people.

Yet, the transaction costs or perceived risks of directly supporting SMEs can be too high for some development partners, investors, or local banks. The result is that many SMEs lack the early-stage technical assistance or financing they need to expand.

We see a huge missing middle finance gap that blended solutions can help to fill.

That is why we have partnered with Jean-Philippe’s firm, Bamboo Capital Partners, to create a blended impact investment fund. It is designed to attract concessional and commercial growth finance to our pipeline of SMEs, financial service providers, and local infrastructure projects. We hope our work inspires more investors to enter this space.

Second, blended finance may be more difficult in LDCs, and may not always be the right tool. Public finance - ODA and domestic resources – will in many cases be more appropriate financing solutions.

So we need to be careful about the incentive structures we put in place. Given the need to mobilize larger amounts of finance to meet the SDGs, MDBs and DFIs are looking to make optimal use of their balance sheets and strengthen the catalytic role of their interventions.

Recent reports have suggested that the mobilization ratios for LDCs is lower than elsewhere, and a question some stakeholders have raised is whether we should therefore be setting hard mobilization targets to maximize private sector inflows.

While setting hard mobilization targets is intuitively appealing, we have concerns.

For example, they can further skew resources towards MICs, because they will tend to be higher there than in LDCs, owing to the lower perceived risks and larger scale of investment opportunities. Hard ratios can also lead to a focus on meeting quantitative targets, as opposed to focusing on the impact on sustainable development.

So it may be that we should accept that the mobilization agenda in LDCs will be different– but that we still pursue those deals where they are appropriate because they are impactful and transformative.

This brings me to my third point: we need development finance institutions and multilateral development banks to expand even further their blended finance investments in LDCs – where blended strategies are appropriate and respect national ownership. This is a key recommendation in our action agenda.

Some actors may shy away from such markets for several reasons: low risk appetite given the need to preserve their credit ratings; a lack of awareness of investable projects; ticket sizes that are too small; or mandates that favour commercial returns.

Still, there are innovative solutions that should be explored and scaled up. This may require the boards of development finance institutions and multilateral development banks to give them sufficient headroom to take more risks while preserving their financial sustainability.

This could mean, for instance, establishing or further replenishing dedicated funds, facilities, or special purpose vehicles that will allocate a greater portion of investment portfolios towards projects in LDCs.

Fourth, we need to focus on domestic institutions, such as national development banks. In Uganda, the Uganda Development Bank is one of our main partners given the potential it has to help finance the country’s national development bank.

And we need to focus also on crowding-in domestic investors. Our report shows that two-thirds of blended finance deals in LDCs involved a local private counterpart. Providers and other development partners in LDCs should therefore actively seek out suitable domestic investors— many of whom may be more willing to invest in local projects than external investors—and support blended transactions in local currencies. This too was a recommendation in our action agenda.

Finally, we need to improve our monitoring and evaluation tools to assess the impact of blended finance deals and to capture lessons that can inform government policies.

To improve transparency, it is important that concessional providers make publicly available such information as how much ODA is going into blended transactions.

This too is a recommendation in our action agenda, as is the need to increase knowledge-sharing and evidence – which is another reason why this meeting, and the one I am attending in Uganda are so important: so that we can learn from each other and improve how blended finance can work for the LDCs.

The stakes are high. We cannot accept as some iron law of nature that the bulk of development finance and SDG-related private investment bypass LDCs.

I look forward to working with you on what more could or should be done when it comes to applying blended finance in LDCs.