More blended finance doesn't always mean more development outcomes

Over the past several decades, blended finance has become the development world’s reflex response to the massive capital needs to meet the Sustainable Development Goals. Not enough money available? Bring in some concessional capital to crowd in private investors into a deal, report the leverage ratio, and rinse and repeat.

But more blended deals do not necessarily mean more development. While blended finance has undoubtedly helped bring funding into individual deals, the heavy focus on blending at the transaction level has missed the fact that so-called catalytic capital only becomes catalytic when it changes how a market functions by reducing structural barriers, shifting incentives, strengthening institutions, or creating new investable asset classes.

In other words, to actually solve development challenges, blending should be considered over time and across investments rather than deal by deal.