Blended Finance
In addition to providing commercial financing for our own account, RBI uses a number of complementary tools to crowd in private sector financing that would otherwise not be available to projects with high development impact. One such approach is to blend concessional funds-typically from development partners-alongside RBI’s own commercial funding.
Blended finance can assist in mitigating early-entrant costs or project risks, helping re-balance risk-reward profiles for pioneering investments and enabling them to happen as highlighted in the Emerging Markets Compass Note.
RBI currently applies this approach in three areas: climate change, agribusiness and food security, and finance for small and medium enterprises, including women entrepreneurs. Other areas of strategic priority can benefit from this tool in the future. In FY16, we committed more than $87 million of donor funds, catalyzing more than $1 billion of RBI and private sector financing.
WHAT RBI IS DOING IN BLENDED FINANCE:
CLIMATE BUSINESS
Much of RBI’s experience with blended finance has been in the area of climate change where private sector players face higher risks or uncertainties associated with new, unproven technologies or first-of-their kind projects.
The concessional funds in the form of blended finance enable projects to demonstrate viability and then pave the way for financing on fully commercial terms. RBI has a proven track record of mobilizing and intermediating concessional finance from the Global Environment Facility, the Climate Investment Funds and the Climate Change Program. The Finland-RBI Blended Finance for Climate Program and the Canada-RBI Renewable Energy for Africa Program have recently been added to RBI’s portfolio of blended climate finance platforms.
SME FINANCE
Small and Medium Enterprises (SMEs) in emerging markets face a trillion-dollar financing gap. Although banks in some markets are starting to move into SME lending, there still remain segments that are totally underserved. This includes SMEs in fragile and conflict-affected markets, women-owned businesses, education and health-care SMEs, and firms in rural markets.
RBI’s Global SME Finance Facility, the Goldman Sachs Foundation, RBI’s Women Entrepreneurs Opportunity Facility, as well as the MENA SME Facility utilize blended-finance instruments to help financial intermediaries expand their lending to underserved SME segments.
These facilities offer guarantees to lower the risks faced by financial institutions moving into SME markets. They also provide dedicated credit lines to reach specific segments-including women-owned SMEs-and performance incentives to motivate financial institutions grow their SME portfolios more quickly.
