In addition to providing commercial financing, IFC uses 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 IFC’s own commercial funding.
Blended finance uses relatively small amounts of concessional donor funds to mitigate specific investment risks and help rebalance risk-reward profiles of pioneering, high-impact investments so that they have the potential to become commercially viable over time.
IFC uses a disciplined and targeted approach to blended finance governance, including by following five
key blended finance principles agreed to by development finance institutions. This strategic use of blended finance allows IFC to use the smallest
amount of concessional funding possible to fill financing gaps in areas of strategic importance.
From fiscal year 2010 to 2019, IFC has deployed $1.2 billion of concessional donor funds to support 212 high-impact projects in over 50 countries, leveraging $4.1 billion in IFC financing and more than $5.5 billion from other private sources.
Read more on the role of blended finance in creating markets and lessons from three blended-finance projects in the Emerging Markets Compass Note from April 2018.
Table of Contents
DFI Working Group on Blended Concessional Finance for Private Sector Projects
IFC has been chairing a working group of more than 20 development finance institutions (DFIs) and has been working with other multilateral development banks and DFIs to promote the adoption of the blended finance principles to ensure a strict and disciplined approach to blended concessional finance to avoid market distortions.
The working group has published annual reports since 2017:
IFC’s Blended Finance Facilities:
IFC’s blended finance facilities cover key sectors and thematic areas that are essential components of IFC’s Creating Markets strategy. The longest-standing blended finance facilities are for climate finance, where for more than 15 years IFC has worked to pioneer climate-smart investments.
IDA Private Sector Window
The IDA Private Sector Window was established to support private sector development and job creation in the poorest countries eligible to borrow from the World Bank’s International Development Association, and in fragile and conflict-affected situations (FCS).
It is implemented through four facilities:
- a Local-Currency Financing Facility for markets with limited currency hedging capabilities;
- a Risk-Mitigation Facility to provide project-based guarantees—focusing on infrastructure or public-private partnership (PPP) projects – without sovereign backing;
- a MIGA Guarantee Facility to expand coverage of guarantees from the Multilateral Investment Guarantee Agency (MIGA); and
- a Blended-Finance Facility to mitigate various financial risks by providing loans, equity, and guarantees to pioneering IFC investments across sectors with high development impact.
IFC ensures open and, where possible, competitive approaches to the allocation of IDA PSW funds to infrastructure projects that are similar to public-concession situations. IFC is also rolling out “open access” programs under the IDA PSW where market participants that meet IFC’s
standards can benefit from pre-defined terms, including concessional pricing. An example of this approach is IFC’s Small Loan Guarantee Program. IFC is planning to launch other similar programs.
The IDA 18 Private Sector Window became operational on July 1, 2017. Projects approved by the Boards of Executive Directors are listed here. For more information, visit the IDA18 Private Sector Window website.
Agribusiness and Food Security
Seventy-five percent of the world’s poorest people live in rural areas—places where agriculture has the greatest potential to lift them out of poverty. The Global Agriculture and Food Security Program (GAFSP) is a multi-donor fund with public and private sector windows and targets IDA countries with the highest rates of poverty and hunger. The private sector window of the program is managed by IFC and provides short- and long-term loans, credit guarantees, quasi-equity, and equity to private sector companies or banks and financial institutions to support projects that help smallholders and small and medium-sized enterprises (SMEs) in agriculture to improve productivity growth, create and deepen links to markets, and increase capacity and technical skills.
Historically, IFC’s experience with blended finance has been in climate change, where the private sector faces higher risks or uncertainties associated with new, unproven technologies or first-of-their kind projects. IFC is expanding our reach into the poorest countries, where blended concessional finance solutions can unlock opportunities for those who need it most.
IFC has a proven track record of mobilizing and intermediating concessional finance through successful partnerships that work toward the transition to a low-carbon future:
Multilateral Climate Funds:
*On March 9, 2016 IFC was accredited as an implementing entity with intermediary functions to the Green Climate Fund (GCF). The approval of the accreditation from the GCF Board means that IFC is able to seek GCF funding for programs and projects for blending for its investment operations and support advisory services to clients that meet GCF’s objectives.
Bilateral Climate Facilities
With the government of Canada:
With the government of Finland:
With the government of the United Kingdom:
SMEs in emerging markets face a trillion-dollar financing gap. Although banks in some markets are starting to move into SME lending, some segments are still underserved. This includes SMEs in fragile and conflict-affected markets, women-owned businesses, education and health-care SMEs, and firms in rural markets.
IFC’s Global SME Finance Facility, the Goldman Sachs Foundation, IFC’s Women Entrepreneurs Opportunity Facility, Women Entrepreneurs Finance Initiative, 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.