Blended Finance

Blended finance—the use of public and philanthropic funding to crowd in private capital—is a potential way to finance a more sustainable world. We provide a conceptual framework that formalizes the decision-making of development finance institutions (DFIs) that engage in blended finance, and provide empirical evidence using deal-level data from a major DFI. Consistent with our conceptual framework, we find that DFIs provide higher concessionality for projects with higher sustainability impact. Moreover, the concessionality is higher for projects in countries with higher political risk and information asymmetries. In such cases, the blending tends to also include risk management provisions.