Blended Finance

Blended Finance has emerged in recent years as an important tool in financing sustainable development projects. Despite record growth and increasing interest in practice of late, Blended Finance has drawn little attention in academia. As a result, there is a lack of commonly accepted definitions, quantitative analysis is suboptimal, and the discussion of related challenges has been scarce. In this article, we address these gaps; it is, to our knowledge, the first academic article to discuss Blended Finance from a legal and regulatory perspective.

We define Blended Finance as a type of structured project finance in the Global South that combines mission-linked capital stemming from donors and the public with return-seeking private funds (often non-concessional debt), with a view to supporting private sector projects aimed at positive externalities (i.e. sustainability impacts). While Blended Finance is often confused with public-private partnerships we clarify that the former’s uniqueness lies in its diversity of primary missions: some contributors seek private returns, while others aim primarily for public returns.

The diverging interests of contributors’ come with challenges in project set-up and execution. At the same time, many of these projects are executed within an environment characterized by weak institutions, prompting the question of what role law and regulation could realistically play in addressing such issues to ensure that Blended Finance can function as a valuable sustainable development tool. Accordingly, we list the main challenges herein and lay out policy options seeking to reflect the realities of the Global South.

This article is structured as follows: Pt. II defines Blended Finance and showcases some prominent examples; Pt. III identifies the main challenges; Pt. IV presents our policy considerations; and Pt. V concludes.