The Use of Development Funds for De-risking Private Investment: How Effective Is It In Delivering Development Results?

The use of Official Development Assistance (ODA) to mobilise private finance is increasingly seen as essential to meet the Sustainable Development Goals (SDGs). Numerous development agencies have set up diverse de-risking initiatives to attract private investment to development projects and the EU is planning to scale up blending support in the near future. Such measures have reportedly been successful in raising private finance and in improving development outcomes but there are concerns with this approach. Funds may be channelled to private shareholders and fail to go to sectors and regions where they are most needed. Funds remain insufficient to plug the SDG funding gap. Blending can create longer-term risks for development agencies and costs for recipient governments. The full impact is often not captured in traditional evaluations. Furthermore, there is an opportunity cost to using ODA in this way and blending may promote the perspective of financial investors over development outcomes.