Blended Finance

in the Least Developed Countries

in 2019

About the Report

While turning the “billions into trillions” is essential to bridge the Sustainable Development Goals (SDGs) financing gaps, there is a need also to focus on the quality of resources mobilised and how they reach those being left behind. While international and domestic public finance remains essential to meet the SDGs, public resources alone will not be enough. The challenge is particularly acute in the least developed countries (LDCs), which have experienced a recent decline in official development assistance (ODA). LDCs also often find it difficult to attract private investment, including foreign direct investment.

Increased public and private financial flows must therefore be made to work for the world’s most vulnerable countries, for underserved markets, and for smaller projects in the so-called “missing middle” – those small and medium-sized enterprises that are too big to access microfinance but too small or seen as being too risky to access commercial loans offered by mainstream financial institutions.

In these settings, blended finance offers potential opportunities to increase the resources available to LDCs and the missing middle. But such approaches are not without limitations or risks, and need to be deployed carefully. To improve how blended finance strategies can best work for LDCs, it is essential to understand not only the quantities of finance they mobilise and the regions and sectors they are benefitting, but also how these strategies are being applied, and, more broadly, how the financing for development architecture is evolving and supporting LDCs to meet the SDGs and ensure no one is left behind.

This report, the second in a collaboration between the United Nations Capital Development Fund (UNCDF) and the Organisation for Economic Co-operation and Development (OECD), outlines the latest trends in blended finance approaches in LDCs. It updates the previous 2018 report with the latest available data from the OECD, which now cover the six years from 2012 through 2017. It also features seven guest pieces by practitioners and experts working in the blended finance space, which showcase the opportunities and challenges of applying blended finance solutions in LDCs. The report concludes with a review of the next steps for the blended finance and development communities, and flags some emerging issues revealed in the report.

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This report lays down a challenge to the actors within the financing for development architecture, calling for blended finance to be much more responsive to LDCs, to the ‘last mile’, and to smaller transactions in the missing middle.


Judith Karl
Executive Secretary
UN Capital Development Fund

Blended approaches can help mobilise much-needed additional resources for the LDCs and they can create demonstration effects that narrow the gap between actual and perceived risks of investing in these markets. But such approaches need to be considered and deployed carefully. In signing the Addis Ababa Action Agenda, Member States have agreed on a set of overarching principles for blended finance and public-private partnerships (PPPs). The OECD principles on blended finance provide a policy framework to ensure the sustainability of blended finance, while initiatives such as the multi-stakeholder Tri Hita Karana Roadmap and the UNCDF action agenda on LDCs are also focused on improving the effectiveness and efficiency of blended operations.

Specific lessons from this report include:

Blended finance solutions should respect national ownership, be aligned with national priorities and applied as part of a broader national SDG financing strategy that takes into account domestic and international, public and private sources of finance.

In crisis-affected contexts, where ODA plays an essential role, blended approaches must be particularly transparent and accountable, and avoid doing harm by widening disparities.

Technical assistance plays an important role in blended finance transactions in LDCs, including by helping to put in place the right capacities and institutions to identify, analyse and structure blended operations; and to strengthen investees’ operational efficiency and environmental, social and governance (ESG) compliance.

A local presence, be it an investor or a fund manager, can help build local capacity and understand risks and opportunities attached to each investment.

There is a need for further research and efforts to strengthen SDG impact monitoring and measurement.

If blended finance continues to become an increasingly important modality of development co-operation, then development partners will need to ensure that this does not come at the expense of support for LDCs and other vulnerable countries – those where blending has been more challenging. It may be that there is a need to accept that the mobilisation agenda in LDCs will be different—but that those blended finance deals, where they are appropriate, are pursued because of their sustainable development additionality. Ultimately, different financing models—public, private or blended—will be best suited for different SDG investments in different contexts and governments should be in the driver’s seat in determining which approach works best where.

The Report

  • Executive Summary

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Blended Finance by the Numbers

+1B

Population, total (millions)
in LDCs

33% urban population
in LDCs

$2,483B

GDP Total, 2011 purchasing power
parity, $ billions in LDCs

$2,536 GDP per capita
in LDCs

3.3%

Foreign direct investment
net inflows (% of GDP) in LDCs

4.5% Net ODA received
(% of GDP) in LDCs

38.4%

Domestic credit provided by financial sector (% of GDP, 2010-15) in LDCs

3.87% Remittance inflows (% of GDP) in LDCs


The Sustainable Development Goals (SDGs) are all about transformation—transformation driven by partnerships, risk-taking and innovation.

Foreword by Jorge Moreira da Silva, Judith Karl and H.E. Mr. Perks Ligoya

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