How Blended Finance Works

IFC uses blended finance to mitigate specific investment risks and help rebalance risk-reward profiles of pioneering investments that are unable to proceed on strictly commercial terms with relatively small amounts of concessional donor funds.

Blended finance solutions at IFC can be structured as debt, equity, risk-sharing, or guarantee products with different rates, tenor, security, or rank. Under select facilities, they can also be performance-based incentive structures. Solutions are tailored to address specific market barriers and the requirements of donor partners.

IFC has a well-established, formal, and rigorous approach to blending concessional funds alongside its own capital, including the principles and governance by which it applies such funds.

The use of blended finance allows IFC to fill financing gaps by addressing market barriers and attracting private sector investments to areas of strategic importance with high development impact. As pioneering projects, when successful, blended finance investments pave the way for other investors and help create markets. With increased interest in the use of blended concessional finance, IFC pays particular attention to its ability to measure project outcomes and impact. Read more about IFC’s Anticipated Impact Measurement and Monitoring (AIMM) system.

IFC has nearly two decades of experience implementing blended concessional finance and currently manages and invests in projects supported by various blended finance facilities funded by various development partners.

While blended finance resources can be instrumental in helping move high risk/high impact projects forward, they must be used:

IFC applies a disciplined and targeted approach to blended finance, following the DFI Enhanced Blended Concessional Finance Principles for Private Sector Projects:

These enhanced principles and guidance for providing blended concessional finance for private sector projects include guidelines for how to push for commercially viable solutions using minimum concessionality. In addition, it advocates for increased scrutiny of projects proportionate with the underlying risk that concessional resources could lead to market distortion.