Blended finance
Topic: Balance of Payments and Exchange Rates · NCERT: Beyond NCERT
Meaning
Blended finance uses concessional money, meaning cheaper or softer funds from governments, development banks or charities, to lower the risk of a project. Lower risk then draws in private investors, who would otherwise stay away. A small amount of public money can bring in a much larger amount of private money for development and climate projects in poorer countries. It is part of the G20 agenda for reforming multilateral development banks (MDBs).
Example
A development bank agrees to take the first losses on a solar power project in a low-income country. Because their risk is now lower, private banks agree to lend the rest of the money.
Don't confuse with
- Debt-for-nature swap: this cancels part of an existing debt in return for conservation spending. Blended finance raises new investment by sharing risk.
Related concepts
- External debt
- Debt service ratio
- Sovereign credit rating
- Sovereign default
- Sovereign debt restructuring
- Official Creditor Committee
- Comparability of treatment
- Debt-for-nature swap