Using public funds to mobilise private capital

Informing more effective collaboration between public and private sectors in financing impactful investments.
A local market in Myanmar. Photo: Asian Development Bank, CC BY-NC-ND 2.0

The Sustainable Development Goals (SDGs) marked a change in development debates. Not only do they promote an integrated approach to economic, social and environment development, they place emphasis on a development model where private and public sectors have complementary roles to play in supporting inclusive and sustainable growth. They also represent a major shift in the international community’s strategy to achieve these goals by recognising the central role of the private sector, private finance and investment.

This shift is epitomised by the increasing emphasis and growing interest of the international development community in ‘blended finance’ – the use of official development finance to mobilise private finance in support of the SDGs and the UNFCCC Paris Agreement on climate change.

As increasing amounts of official development assistance (ODA) and other forms of public development finance continue to be invested – progressively through development finance institutions (DFIs) to mobilise private finance and investment – it becomes critical to better understand the potential and limitations of this approach in different contexts. For example, how the approach can be better tailored to ensure that countries and people are not left behind, and how the development impact and market creation effects of this approach can be maximised.

National development banks (NDBs) are also increasingly being recognised as key actors that can play a critical role in mobilising private finance and investment to support the achievement of the SDGs at the national level. To date, this role has been overlooked in international financing for development policy discussions which tend to focus more on multilateral development banks (MDBs) and DFIs. This oversight undermines the effectiveness of policy and financing at the international, regional and national level, not least because the firepower of the NDBs far exceeds that of the core multilateral and bilateral banking system.

We conduct high quality research in each of these areas to:

  1. Inform a more balanced and nuanced policy dialogue on the use of public finance to mobilise private investment.
  2. Better inform donor decision making on when, where and how to invest ODA in blended finance to maximise development impact.
  3. Inform the development of a more effective development finance architecture.

Key aims:

  • Understanding the potential and limitations of blended finance.
  • Understanding the impact of blended finance on the achievement of the SDGs and the Paris Agreement and how impact can be maximised.
  • Supporting the development of more effective blended finance approaches to ensure that the poorest are not left behind.
  • Improve understanding of the crucial role of NDBs in development finance and help inform a more effective development finance architecture