In Brief: New OECD DAC blended finance framework

The Organisation for Economic Co-operation and Development released a new blended finance framework on Monday aimed at helping increase and improve the quality of finance that is mobilized and invested in low-income countries. “Against the background of increasing risk of fragmentation in blended finance approaches and governance, a common policy framework and understanding is crucial to ensure effectiveness,” says the framework, which aims to outline policy recommendations and practical steps for implementation. Background: OECD defines blended finance as “the strategic use of development finance for the mobilisation of additional finance towards sustainable development in developing countries.” Additional finance is commercial finance that doesn’t primarily target development outcomes. In October 2017, OECD’s Development Assistance Committee officially adopted five OECD DAC Blended Finance Principles for Unlocking Commercial Finance for the Sustainable Development Goals. The principles say that blended finance should have a development rationale, be used to increase the mobilization of commercial finance, be tailored to the local context, focus on effective partnering, and be monitored for transparency and results. What’s new: At 50-plus pages, the new framework document includes background information, best practices, a checklist for each of the principles, and a number of case studies aimed at helping policymakers and investors evaluate what makes a good deal and understand what works. The guidance is quite detailed, and the questions in the checklists often go beyond the scope of individual projects to ensure that investments are clearly identifying market failures and coordinated with the broader ecosystem. The guidance will be updated over time, as it notes that “blended finance is still a relatively new tool in the development co-operation toolkit and the blended finance environment is rapidly changing, new practices and approaches can develop quickly.”