Artwork for podcast Capital Musings
S03.11 Third edition of the Blended Finance in the LDCs report
Episode 1124th November 2021 • Capital Musings • UN Capital Development Fund (UNCDF)
00:00:00 00:49:12

Share Episode

Shownotes

The United Nations Capital Development Fund (UNCDF) and the Organization for Economic Cooperation and Development (OECD). from their flagship series: "Blended Finance in the LDCs, 2020: Supporting a Resilient Covid-19 Recovery." The third edition of the Blended Finance in the LDCs report series acknowledges that least developed countries are not able to harness the full potential of blended finance, defined in the report as the strategic use of development finance to mobilise commercial finance towards the SDGs, with a focus on unlocking investment that the private sector would not have done on its own. 

We had the opportunity to hear from three of the authors—UNCDF's Laura Sennett, and the OECD's Valentina Bellesi and Faty Dembele—who discussed the findings of the report as well as its recommendations for how LDCs can benefit from blended finance to navigate the COVID-19 pandemic and support economic recovery in the post-pandemic period.

Transcripts

Esther:

Welcome to season three of Capital Musings, UN CDs podcast, where we focus

Esther:

on fresh ideas and new innovations that serve our mandate to make finance work for

Esther:

the poor in the world's least developed.

Esther:

You can find our Capital Musings podcast on apple, Spotify, or our website,

Esther:

www dot UN CDF dot or the theme of season three is the road to Doha.

Esther:

We will be exploring issues relevant to the LDCs ahead of the fifth UN

Esther:

conference on the least developed countries in Doha, Qatar in 2022.

David:

If this is the first time you're joining us.

David:

Welcome.

David:

If you are a repeat listener.

David:

Thank you.

David:

And thank you for your support.

David:

Today's show, if you all listening to this podcast, then you are likely aware that

David:

the United nations capital development fund and OACD launched the third edition

David:

of our blended finance reports series known as blended finance in the LDCs.

David:

This is the third and most recent edition.

David:

That includes new insights, new data and new guest pieces

David:

that addresses the question.

David:

Of how can we leverage blended finance specifically to increase the flows of

David:

finance, to where they are needed the most, the least developed countries and

David:

in particular to support sustainable development as we are now in earnest in

David:

the decade of action for implementation of the SDGs, this is an important complex.

David:

And essential subject.

David:

And that is why I am so excited that we have really three outstanding

David:

thought leaders and analysts who are also really the driving forces

David:

behind this report becoming a reality.

David:

And really a and not just in terms of its data.

David:

And it's insights, but also in terms of an action agenda that can be

David:

applied in the interest of leveraging blended finance to support the LDCs.

David:

My guests today are Laura Senate penalty specialists with the United nations

David:

capital development fund, Patty Denver LA policy analyst with the OACD and

David:

Valentina Balisi policy analyst with OEC.

David:

So, thank you so much for setting aside the time to come onto the

David:

podcast and to speak with us about this report and Laura, I'm going to

David:

start with you and it would be great.

David:

Just if you could give us an introduction to the report, talk to

David:

us about the purpose of the report, some background, and just some context

David:

that would be good for people to have in their minds before they get.

Laura:

Great.

Laura:

Thanks, David.

Laura:

Thanks very much for having us today.

Laura:

And I'm very happy to be here with the other authors of this report.

Laura:

So this is the, as you mentioned, third edition of this report, the

Laura:

first edition was really a UN CDF led product where we decided we

Laura:

really wanted to look at this ne.

Laura:

Uh, area focused within the blended finance world, really focusing on

Laura:

LDCs as that is UNC PDF's mandate.

Laura:

And we have since then increased our collaboration

Laura:

with the OACD on this report.

Laura:

When we started planning for this addition in January of 2020, the world

Laura:

was a little different than it is now.

Laura:

And so, at the beginning we were thinking about how this relates

Laura:

to the SDG deck and of action.

Laura:

We knew that the.

Laura:

Fifth conference, on least developed countries that the UN was coming up

Laura:

that actually was postponed because of the COVID pandemic this year.

Laura:

And when we got deeper into the planning by March, it became very

Laura:

clear that we needed to address COVID in our paper as well.

Laura:

So in addition to still, of course, focusing on the decade of action,

Laura:

how to achieve the SDGs, looking at the upcoming now for next year.

Laura:

LDC five conference.

Laura:

We also really look at what the role of COVID is.

Laura:

How has it affected financing in LDCs and what can be the role of blended finance

Laura:

in helping to recover from the pandemic?

Laura:

So we hope that this is really a topical report that promotes discussion and

Laura:

debate, but also action on how to move forward to increase financing for the.

David:

Thanks for that.

David:

And obviously COVID dominated really the news and the mind share of

David:

everybody in the world this year.

David:

And for those involved in the development finance space, you often

David:

hear about the progress that had been made in the context of blended

David:

finance and sustainable development in LDCs prior to COVID and how COVID

David:

may present a threat to those things.

David:

Uh, Valentina, I'd love to speak with you.

David:

And I love to hear from you a little bit about that progress.

David:

What was the progress that had been made in the area of blended

David:

finance specifically for LDCs prior to the onset of COVID-19.

:

Thank you, David, for this very good question.

:

So I need to say that even prior to the COVID-19 crisis, we

:

know that the LDCs were facing.

:

If you want, really, this park is challenges in terms of financing

:

for sustainable development.

:

We know that the domestic resource mobilization is really challenging

:

for LDCs, which typically have very low levels of income, domestic

:

savings, and an often very inefficient domestic source, mobilization.

:

Right?

:

This country is typically rely to a very large extent on external finance.

:

So development, finance, remittances at the eye flows and other private

:

investment flows, which by the way, we know they're really Beverly

:

impacted by the COVID-19 crisis.

:

So among those different sources of financing development, finance

:

plays a critical, important role.

:

And we know from preliminary data for 2019 that the neck bilateral

:

ODA flows, Sophie show development assistance to LDCs increased by

:

about 2.6%, which is good news.

:

It's a good improvement.

:

However, we know that the governments are really falling short of

:

their commitments on ODA to LDCs.

:

And while we call on the report is for them to recommend,

:

to achieving those targets.

:

And these days when we were blended finance can come and

:

play a role rolling at DCS.

:

And I think there's really strong and growing consensus, even among

:

traditional donors that blended finance needs to play a bigger role.

:

And the focus is really on.

:

So we know that there's still a huge gap in terms of the financing needs.

:

We know that the financing is employing how have a real ultimate know that

:

the trillions are in the system.

:

So it's a matter of shifting them and really aligning them to the RDCs and

:

to sustainability purposes and blended finance can help tackle these problems.

David:

Would you mind just a quick follow-up in terms of how blended

David:

finance can tackle that problem.

David:

You talk about shifting finances.

David:

Can you talk or provide maybe an example of how blended finance can play that?

:

Yeah.

:

So what we did is to take a look at the OACD, that data on the private

:

finance mobilized by efficient development, finance intervention.

:

So these are blended finance, internationally

:

interventions by traditional.

:

Back the FIS and so development, finance institutions, and with

:

collateral development banks.

:

And we see the, actually the product finance mobilized in DCS is overall

:

stable in terms of shares over the years in 2018 alone, 3.8 billion us

:

dollars were mobilized in that disease.

:

and we know that different instruments are being used to mobilize private violence in

:

our DCS, guarantees for instance, continue to be the instrument that mobilize the

:

highest share of private finance in LDCs.

:

we've seen that they were used to a lesser extent.

:

With respect to previous years, and guarantees were followed by a direct

:

investment in competent in companies.

:

So equity and a special purpose vehicles, which is actually a good improvement

:

as we know the high potential.

:

Equity investments, which varies across different LDCs depending on

:

the developments and certainly the strength of the equity markets.

:

But one of the things we argue in the report is that the more use or And

:

increased and improved with use of guarantees, special purpose vehicles, as

:

well as other blended science instruments and mechanism can have direct more

:

private investment towards these countries and also explore different sectors,

:

different contexts and different projects.

David:

Thank you for that.

David:

And to move from that to the more specific point of blended finance in the context

David:

of COVID fatigue, I'd love to hear from you as an author of the report.

David:

What do you, and by extension the report project as the key opportunity.

David:

For blended finance to serve as a tool to tackle the COVID-19 crisis

David:

specifically in the LDC context.

:

Sure, thanks a lot, David, for this very important question that

:

we really try to address in this report.

:

First of all, I would like to say that blended finance has always been

:

a tool in the development toolkit.

:

The toolbox that is extremely interesting.

:

Drag tracked additional resources throughout our disease, but maybe

:

this COVID-19 crisis is actually making benefits even more.

:

Well, we are giving him this paper is that really blended

:

finance can have two purpose.

:

The first one is how to stimulate the recovery and essentially bring in more

:

private investment towards the analyses.

:

And secondly, and more importantly, in the longer term, build more resilient.

:

Because one of the key lessons that we've seen from this COVID-19 crisis is the need

:

to really make sure that these countries are prepared for other future chocks.

:

So when we've looked at this COVID-19 crisis in the paper, we've seen

:

that there have been some instances where blended finance has been

:

used in response to the crisis.

:

We give some example typically in the trade finance space, we've

:

seen that Development finance institutions, such as IFC.

:

I've developed a new programs.

:

We mentioned this global trade finance program as one of the

:

example where basically AFC offers two local banks, partial or full

:

guarantees to cover payment risks for trade related transaction.

:

This is one of the way that it finance has been used.

:

We also think that blended finance can really have a huge potential to

:

address liquidity and solvency needs.

:

In all disease.

:

We've seen that SMS have been severely eaten by this crisis.

:

And, but if finance towards these con, these types of companies can be extremely

:

efficient and accelerate drop creation.

:

I think said that we also recognize that there are huge challenges, right?

:

There's a very high risk perception, especially in LDCs all the risks

:

that we know that related to this countries are still extremely relevant.

:

But blended finance has also the potential to reduce these risks perception.

:

And this could be done by using more risk mitigation instruments, such

:

as guarantee is valid in dementia.

:

We think that really there's a lot of opportunities in this, in the light of

:

this crisis to use blended finance more, but more importantly, more effectively.

:

And one of the things that we also arguing in the paper is that in

:

order for blended finance to be used.

:

Very in a very relevant way for LDC.

:

We also needs to ensure that we are following some of the

:

principles, some of the guidance that has been identified before.

:

And we are mentioning as one of the example, the OACD deck blended

:

finance principle that really can be applied in this context.

:

We're saying that just to give you a few example, we really need

:

to ensure that we are mobilizing at a larger, at a greater scale.

:

Private investors.

:

We need to ensure that there's a stronger development rational when we invest

:

in LDCs and we're able to demonstrate the impacts that have been achieved.

:

It's also about engaging with local beneficiaries, especially

:

in light of this COVID-19 crisis.

:

Some of the LDC governments are likely to implement a new national recovery

:

plan, new national financing plan and future blended fires program.

:

We need to be aligned with.

:

So really we understand that benefiting us has got to be even more needed,

:

but also needs to be effectively used.

David:

Thank you for that.

David:

So there's a clearly mapped out role for blended finance in the COVID

David:

19 context, but as already been discussed, there's a post COVID.

David:

Economic recovery interest that also needs to be addressed, particularly

David:

whether it is to reverse the losses in terms of the losses of STG gains, as

David:

a result of COVID or simply to enhance SDG gains again, as we are in the decade

David:

of implementation to achieve the STGs.

David:

Laura back to you.

David:

What do you envision are the key areas for building forward better from

David:

COVID-19 for LDCs and particularly obviously in the way that blended

David:

finance can play an essential role

Laura:

with that is one of the big questions that we look at in our report.

Laura:

And as Patty mentioned, so there are these sort of overarching principles

Laura:

and ideas about aligning with government plans, things like that.

Laura:

And then it's really okay if you are local DFI or regional bank or a government

Laura:

minister, where should you focus then?

Laura:

And we try to outline some areas where we suggest that could be areas of focus

Laura:

that will be really important for building forward better, as you said, David, so

Laura:

faculty sort of mentioned this already.

Laura:

One of the first things that we see given the impacts that have already shown to

Laura:

come to fruition is that it's really going to be important to get people back to.

Laura:

In decent and sustainable jobs.

Laura:

So making sure that, of course they, people get back to work in

Laura:

jobs that really add productive capacity to their economies making

Laura:

sure that they have a livelihood to be able to support their families.

Laura:

That is really a crucial step in the building forward.

Laura:

Better.

Laura:

We know evidence shows us that job creation is one of the

Laura:

strongest indicators for then being able to grow an economy.

Laura:

So we really think that that's utmost importance.

Laura:

We also think, and as you mentioned, there is a lot of potential.

Laura:

If you focus on.

Laura:

They are again, evidence shows us, they are really one of

Laura:

the largest employers in LDCs.

Laura:

And so supporting these SMEs will be really important to getting LDC economies,

Laura:

back on track, but also building forward as we're looking at as well in the report.

Laura:

So making sure that SMEs are supported in a way that they're able to continue

Laura:

to grow, provide the services that they do within their economies.

Laura:

And of course provide the jobs that they create as well.

Laura:

Next we say, there's really, it's important to emphasize gender equality.

Laura:

We also know there's evidence that the pandemic is affecting women and girls,

Laura:

more significantly than men and boys.

Laura:

This is due to the nature of the role of the woman.

Laura:

The more the places that their jobs they're at greater risk of being laid off.

Laura:

They have lower access to social protections.

Laura:

They often hold less secure jobs in the informal economy.

Laura:

They're more often frontline health workers than men.

Laura:

All of these reasons are why it's very important to focus on women and gender

Laura:

equality in building forward better because really we cannot leave behind

Laura:

50% of the population in the world.

Laura:

And we present a few examples of how to do this in terms of using

Laura:

blended finance to really focus on SME lenders that have women focused

Laura:

fund managers, targeting sectors with high levels of female representation

Laura:

looking at things that incorporate a gender lens, any of those examples.

Laura:

Next, we look at how to support health system.

Laura:

At the base of this pandemic, it's a health crisis.

Laura:

And while.

Laura:

Health has been a sector that has been less targeted by blended finance.

Laura:

In the past, we do propose a number of ideas about how this can still be an

Laura:

important place to put focus on right now.

Laura:

Of course it makes sense in the context of this pandemic,

Laura:

because it is a health crisis.

Laura:

So it's important to make sure that.

Laura:

LDC are able to deal with the health crisis on hand.

Laura:

And one of the things that's important to this idea of resilience and building

Laura:

forward better is that we need to make sure that LDC health systems are better

Laura:

capacitated in terms of their ability to deal with this type of crisis.

Laura:

There are some movements in some developing countries where they are

Laura:

trying to start producing their own.

Laura:

Making sure that their health infrastructure is available to them and

Laura:

properly resourced within their country.

Laura:

Because as we saw during this pandemic global supply

Laura:

chains were severely affected.

Laura:

So it was difficult to get sometimes the supplies that they needed, and so,

Laura:

we, again, suggest how a blended finance mechanism could be employed to help

Laura:

finance the production and manufacturing.

Laura:

Pharmaceutical products and the development of health infrastructure.

Laura:

And there's also some interesting examples about how blended finance could be

Laura:

used to help, finance the distribution of vaccines, which is of course, very

Laura:

relevant in this current COVID-19.

Laura:

And the final place where we suggest to focus is again, on this idea of really

Laura:

what are the sectors that are important for building an inclusive, resilient,

Laura:

and sustainable development in the LDCs because we want to make sure, as

Laura:

Patty said, we want to make sure that.

Laura:

LDCs are better prepared for whatever the next crisis may be.

Laura:

And so in building forward better, we want to make sure that they are

Laura:

strengthening, their economies and societies with a resilience lens.

Laura:

We give examples such as the importance of transport and infrastructure, which

Laura:

was highlighted during months of border closures and disruptions in the delivery

Laura:

of essential supplies, shortages of food, particularly true in landlocked LPCs.

Laura:

We give again examples of how blended finance could help be part of the

Laura:

solution to provide financing, to help alleviate some of these channels.

Laura:

We also talk about clean energy.

Laura:

So there's a number of sectors where for example, energy does actually already

Laura:

receive a large portion of blended finance, but it's really important.

Laura:

And building forward better to make sure that we're focusing

Laura:

on clean energy solutions.

Laura:

So again, we give some examples about how this could be supported through blended

Laura:

finance to meet the large financing needs in order to drive low carbon

Laura:

resilient development and jobs in LD.

Laura:

We also talk about the importance of investing in digital

Laura:

infrastructure and digital solutions.

Laura:

So one thing that's definitely been come clear across the world during

Laura:

this pandemic is the importance of having digital solutions and being

Laura:

able to adapt to this type of crisis.

Laura:

Companies and organizations that were already digitally literate

Laura:

and had digital solutions on hand, we're able to adapt quite quickly.

Laura:

And so it's really important to look at the digital divide that exists,

Laura:

where in a lot of LDCs people are not connected and this will only continue

Laura:

to be more and more important in terms of making sure that people have access

Laura:

to services, access to information.

Laura:

So it's really important to invest in that type of digital infrastructure.

Laura:

So that then digital solutions can be used with.

Laura:

Using mobile money for the flow of remittances or the delivery of goods

Laura:

when there's a quarantine, a lockdown and people can't go out, or of course

Laura:

the delivery of information, and this will of course be important as well in

Laura:

terms of the delivery of the vaccine, particularly trying to reach the last

Laura:

mile, we'll need to make sure that there are innovative solutions that

Laura:

are being applied to make sure that the most vulnerable and not hardest to each.

Laura:

Getting attention as well.

Laura:

So we see those, as I said, as some of the areas that in order to build forward

Laura:

for more resilient and inclusive society, these are really important factors to

Laura:

continue in tackling the COVID-19 crisis.

David:

I actually think that's a great place for us to

David:

segue into the action agenda.

David:

And really the, not just this report, but frankly, the entire

David:

series as a consumer of the report.

David:

It's always been clear, at least to me, that the series has always represented

David:

the complementarity of public and private finance in terms of SDG achievement.

David:

If not the necessity of it, we simply won't fill the finance

David:

SDG gap with just public funds.

David:

We need private finance, and that is reinforced in this third edition.

David:

And to that fact, you have put together an action agenda specifically to harness

David:

the blended finance potential for the LDC.

David:

And the action agenda is rooted in basically four recommendations.

David:

Laura, I'd love for you to just, if you wouldn't mind, starting on touching

David:

on maybe a couple of those one being support domestic financial ecosystems

David:

and market development and design blended finance solutions to reach the last mile.

David:

If you wouldn't mind, just expounding on both of those a little bit.

Laura:

Thanks David.

Laura:

Just to take one step back, the action agenda builds on the action agenda that

Laura:

was presented in the 2018 blended finance and least developed countries, UNC PDF

Laura:

report, where that was, you know, based on the first year of research and findings.

Laura:

And if you read closely at our action agenda, now you'll see that

Laura:

those ideas are still in there.

Laura:

And so one of the issues.

Laura:

How do we make sure that this action agenda is taken forward?

Laura:

How do we make sure that the action actually happens?

Laura:

So we really thought as well about how does this action agenda play

Laura:

into, as we've already mentioned, the decade of action into the LDC five

Laura:

preparatory process and help to inform the new program of action for the LDCs.

Laura:

How can it also follow up on ongoing discussions within the

Laura:

United nations about financing for development in the era of COVID-19.

Laura:

So we're really making sure to plug into existing conversations that are

Laura:

happening and then do outreach with the stakeholders in all of these different

Laura:

areas to make sure that action has.

Laura:

As you said it's a four point action agenda.

Laura:

And the first one you rightly said is support domestic financial

Laura:

ecosystems and market development.

Laura:

This became really important to show how blended finance can be used

Laura:

strategically to develop sustainable market systems and build the capacity

Laura:

of local capital market actors.

Laura:

This is important to then help have a systemic effect on the overall.

Laura:

You build local capacity, which is then you're able to improve the enabling

Laura:

environment for future transactions.

Laura:

It's really going to help to look at the development of local capital

Laura:

markets, which also includes providing local currency financing solutions,

Laura:

which is really important in LDCs and mobilizing local domestic investors.

Laura:

And finally, we also talk about the important role of local and regional

Laura:

public financial institutions, particularly looking at the role

Laura:

that national development banks can play in deploying blended finance.

Laura:

And so this idea of through all of our research and findings

Laura:

comes from the idea that the local infrastructure, the local ecosystem.

Laura:

Actors in blended finance needs to be strengthened so that deals can be made.

Laura:

Deals can be properly structured, that the knowledge is local, so that the actors

Laura:

within that space know how to take these.

Laura:

The second action agenda item is designed blended finance

Laura:

solutions to reach the last mile.

Laura:

As of course, our report focuses on the LDCs, it's really important

Laura:

that we make sure we are able to reach the most vulnerable and

Laura:

underserved communities within LDCs.

Laura:

So our recommendations on how to do this are to focus on risk mitigation tools.

Laura:

Scottie talked a little bit about this, and we addressed this in the.

Laura:

There's a number of perceived and real risks in LDCs and it's really

Laura:

important to match the blended finance instrument to the challenge at hand also

Laura:

in LDCs you might have a layering of different challenges or different risks

Laura:

or different barriers to investment.

Laura:

So you might need.

Laura:

The use of multiple concessional elements you might need to blend in different ways.

Laura:

You might need to increase the level of concessionality.

Laura:

So making sure that you're looking at really, what is the correct

Laura:

mix for the context at hand within this action that we also really say

Laura:

it's important to engage with local stakeholders to identify project

Laura:

opportunities in line with local needs.

Laura:

So again, fattie addressed this a bit in.

Laura:

It's really important that the projects that are done are what the priorities are

Laura:

for that country, for that context, for that municipality, and that makes sure

Laura:

that then the finance is being used in the most efficient, most needed place.

Laura:

We also talk about the importance to focus on missing middle enterprises.

Laura:

This is again, a place where you have a lot of workers, a lot of jobs, a

Laura:

lot of women entrepreneurs and all the SMEs, which we've spoken about before.

Laura:

So it's really important to target this enterprise space.

Laura:

We also mentioned that a good place here to build forward is to employ

Laura:

digital financial solutions, which I already mentioned and how that can

Laura:

help reach the last mile and also help bring solutions to large scale.

Laura:

And finally, we want to ensure that there is an accessibility and affordability

Laura:

of products and services delivered through blended finance impact.

Laura:

So we really need to make sure that when all of this is designed, that

Laura:

those at the last mile are able to actually use and afford the service

Laura:

or product that is being delivered.

David:

No, thank you for that.

David:

No, thank you for that.

David:

And Valentina, I'd like to turn to you to address the two other items, but I

David:

like to focus on one in particular first and that's improve impact management and

David:

measurement and promote transparency.

David:

And this would seem like a critical aspect of blended finance as with

David:

development finance, generally, because so much changes on impact measurement.

David:

So if you could just talk about number one, why that's critical and then just

David:

talk a bit about how this portion of the action agenda can be delivered.

:

Thank you David for your question.

:

And as you said, this is really a critical, important recommendation

:

as increasing transparency can seem to be a sort of high level priority,

:

but in fact, each it's really concrete, and I'll tell you why.

:

With a couple of examples, first of all, increasing transparency on, for

:

instance, what works, what doesn't can really serve as a demonstration effect to

:

other potential investors and hopefully bridge that gap that we face in a disease

:

between the real and the perceived risks and business opportunities out there.

:

And secondly, I would like to give you a concrete example.

:

As I said before, for these reports, we have analyzed the OCD back data on private

:

finance mobilized, and actually these EDIS lift that we see a major difficulty,

:

Richie's mainly due to the lack of compatibility across the years, because

:

some were collateral development banks.

:

And since have not reported in the past data that are use abrogated by

:

country and these really in there's the compatibility of the data across years.

:

So it's really hard to say and interpret what would the data.

:

So tell us, so really increasing the availability of the data,

:

the granularity on the data, on financial conditions, on risks and

:

unconditionality is really critical.

:

And we have seen improvements on these.

:

We elaborate further on this and the reports, but we also

:

know that there's a long way.

:

To really improve on this and beyond increasing sort of the transparency and

:

more, if you want the financial side of blended finance, what's also critically

:

important is to improve the impact management and measurement practices.

:

And this is more on the development impact side, if you want.

:

And you will need to remind, remember that one of the objectives of blended

:

finance, you see enhancing the development impact of projects in NDCs.

:

And what we need here is we need to make sure that.

:

Partners in bold.

:

I really engaged and work towards enhancing the impact management

:

and measurement practices.

:

For instance, we making sure that there are a consistent and comprehensive

:

assessments of impact that project tab on the ground, both ex-ante and ex-post and.

:

That we really have desegregated dependent impact results on a variety of.

:

Impact areas.

:

For instance, we know that in blended finance, finance,

:

transections focus on providing jobs.

:

But what's important is not only providing figures on for instance, how

:

many jobs are provided with thanks to that blended finance certain section,

:

but what's the quality of that.

:

What are the conditions provided?

:

What's the gender balance and these kind of considerations.

:

So also here, we have a long way to go and we, when you call for

:

action on improving these practices,

David:

thank you for that.

David:

And then the fourth point, which really, I think for anyone and everyone involved in

David:

blended finance, it relates to a question that you constantly hear about with.

David:

How can you bring blended finance to scale?

David:

So go ahead and please answer that question in the context of the report.

David:

I think ministries all over LDCs I would be very invested

David:

in hearing the answer to that.

:

Yeah, exactly.

:

I think this is really the million question that we do

:

try to answer in the report.

:

But, what we try to say is that really bringing blended finance to scale

:

through systemic and transformational approaches if needed, especially if

:

you want to bridge these huge finance financing gaps that all the LDCs face

:

The main point here that I would like to highlight is one of the ways that

:

we can achieve skill that is adopting a portfolio approach for scalable solutions.

:

What does this mean?

:

These for instance, can include a greater use of collective

:

or pooled investment vehicles.

:

And as I said before, We've seen, an improved use of such vehicles, such as a

:

benefit finding sponsors and facilities.

:

And there was a view also has a survey capturing, lots of different information

:

on these funds and facilities.

:

And we hope to see also more improvement on these in.

:

The next year is, have we seen that?

:

Many deifies and MDBs as well as other actors are increasingly pushed

:

towards investing in these markets.

:

And another way to do these is trying to aggregate multiple

:

projects in order to increase the tickets, if you want the deal ties.

:

Because very often the projects that we see in these countries have a relatively

:

limited ticket size, which private investors can I really be interested in?

:

So aggregation can be a way to.

:

To improve as well as diversification across sectors, across

:

countries and across projects.

David:

Thank you.

David:

So thank you so much for that.

David:

I'd like to turn now to the back of the report and really there's I

David:

think one of the great things about this report is that it is anchor.

David:

By a number of very strong guest pieces by really a diverse array of high-level

David:

thought leaders and practitioners in the development finance space.

David:

One of them is Perera, who is the CEO of grant co GreenCo is

David:

the guarantee arm of the private infrastructure development group.

David:

So I'm Fetty.

David:

I'd love to turn to you.

David:

And if you wouldn't mind focusing on this particular.

David:

And just what can a reader expect in so far as a discussion about the effective

David:

instruments for risk mitigation in LDC?

:

Thanks a lot, David, and thanks for raising the benefit of having

:

so many external experts providing very thought-provoking ideas to really

:

address the SDG financing gaps in LDCs.

:

I would say really, we are extremely interested in the model developed by

:

Garren co, as you said, the private arm, the guarantee arm of the beach group, and

:

what we think is extremely interesting.

:

Case study is the use of guarantee.

:

As a volunteer.

:

I mentioned before, when we look at the OCT data and specifically, or data

:

set on private sector mobilization, where we can see very clearly is

:

that guarantees continue to be the instrument that mobilized the share

:

of private finance in our disease.

:

We're talking about 46% of the bright fund is mobilize.

:

So really there's a very high potential to attract private fi private finances.

:

And that's actually what is doing on the ground for many, many years.

:

When we look more deeply around how this is organized, we could

:

see that on one hand, Garren go has this very high international credit

:

rating from Fiji, from Moody's.

:

And that's really coming from the equity commitments of its government

:

shoulders that really gives them the credibility and a very long

:

track record of providing Garrett.

:

And on the other end, going goat is using that to intern, provide guarantees

:

to infrastructure projects in LDCs.

:

I think when we, when we had this conversation and we prepared this

:

report, we found very interesting, the fact that they have this first.

:

Equity trench from public donors, which are their shoulders.

:

And then in turn, they are able to use, start to write guarantees of up to free

:

times the value of the shelter equity.

:

So we're really talking about mobilization here.

:

The other benefit when we're looking at go and go more specifically, is

:

that you can also use guaranteed.

:

To mobilize up to four times private sector investment

:

into infrastructure projects.

:

So overall, if you look at this in a, take a step back, you realize

:

that fruit garden go every dollar of public sector donut capital can

:

mobilize up to $12 of private sector investment into infrastructure project.

:

That's an extremely powerful model.

:

And when we're talking about mobilize mobilization, it's.

:

To address the significant STG financing.

:

Get me now, this ease.

:

We could really, really look at these sorts of example that can be replicated.

David:

To your point.

David:

It's a powerful example.

David:

And again, it's separate from the ability for scale, the ability for replication.

David:

So incredibly promising.

David:

Thank you for flagging that let me turn to you specifically, because

David:

we are fortunate to have a number of pieces in the report that are authored

David:

by thought leaders within the United nations capital development fund, UNC.

David:

One of those pieces is entitled addressing the missing middle challenge in LDCs.

David:

So I'd love for you to just unpack or provide a preview of this.

David:

You know, log in our organization talks so much about the missing middle.

David:

If you wouldn't mind just providing a brief primer on what is the missing

David:

middle and why will it be crucial in the blended finance LVC context?

Laura:

Yes.

Laura:

As you mentioned, there are three guest contributions from colleagues at UN CDF.

Laura:

And this piece on the missing middle, comes from our least developed

Laura:

countries investment platform.

Laura:

So the missing middle is this space where SMEs really have a fun, a funding gap.

Laura:

So at the beginning of the investment continuing.

Laura:

SMEs are often able to sell finance or raise money from

Laura:

family members or friends.

Laura:

Maybe they're able to get a microcredit loan, something that doesn't

Laura:

require a lot of other capital or collateral in order to get that money.

Laura:

Then there's a space where, proven SMEs a little bit larger.

Laura:

Are able to get financing from commercial banks that could

Laura:

be local commercial banks.

Laura:

That could be international commercial banks.

Laura:

They are proven to be credit worthy.

Laura:

And so they are able to get loans or other financing when they need it.

Laura:

And so in between that space is what we call the missing middle, where SMEs.

Laura:

Not small enough or there they're too big for just having that sort of friends

Laura:

and family financing, but they're not big enough and not established enough

Laura:

to actually get commercial lending yet.

Laura:

And this is a real problem in developing countries, but of course in LDCs because

Laura:

as I mentioned earlier, SMEs are really the engine of jobs of the future.

Laura:

They create.

Laura:

I believe it is seven out of every 10 new jobs and in emerging markets.

Laura:

And so they're crucial to building forward better in LDCs post COVID

Laura:

19 as well as in any context also.

Laura:

So, there are the piece here from the least developed

Laura:

countries, investment platform.

Laura:

Outlines three drivers that really contribute to the continued persistence

Laura:

of this missing middle a financing gap.

Laura:

And they are transaction costs, risk perception, and investment.

Laura:

Right.

Laura:

So first is an element that Valentino already mentioned about scale and

Laura:

size of investments and with an SME, the cost to do the due diligence to

Laura:

appraise and monitor investments into SMEs are just as high as it would be if

Laura:

you're doing a large scale transaction.

Laura:

And so it becomes very expensive.

Laura:

And so this is one of the issues that prohibits a lot of lending towards.

Laura:

Second is risk perception.

Laura:

So again, we've talked about how there are both perceived and real risks, and we

Laura:

addressed that a little bit in the report.

Laura:

And so some of this is that finance years or investors might not have the

Laura:

information that they need on a particular LDC or on the sector within that LDC.

Laura:

There is an overall lack of data, as Valentina mentioned as well, that

Laura:

transparency and impact measurement would also help in this in helping to overcome

Laura:

the constraint of perceived risks.

Laura:

And sometimes again the commercial finance here is really lack the risk appetite to

Laura:

design tailored investment solutions at a large scale to overcome these constraints.

Laura:

So then the third challenge that is listed in this piece is investment readiness

Laura:

SMEs, particularly in the missing middle space, sometimes lack the fluency, the

Laura:

literacy that they need in order to.

Laura:

I engage with local commercial banks and investors in a way

Laura:

that will yield positive results.

Laura:

So there's a certain language.

Laura:

There's certain nomenclature that is used by the investment community.

Laura:

There's a certain way that an SME might need to put together

Laura:

a pitch deck or prove, you know, what is their revenue model?

Laura:

What is their market analysis?

Laura:

Have they done customer, Market segmentation analysis, things like

Laura:

this, that investor might be looking at in order to assess that SME and

Laura:

some of this is sometimes missing.

Laura:

So in order to address these challenges, the least developed country investment

Laura:

platform has a number of solutions.

Laura:

One of which, they explained here in the piece about how, on their,

Laura:

on balance sheet, financing, they're able to provide catalytic capital and

Laura:

technical assistance to help de-risk the businesses and enable them to access

Laura:

additional blended and commercial Capital.

Laura:

So they are all able to offer financing capabilities on concession, very

Laura:

pricing terms, longer grace periods, at a different ranking level, rather

Laura:

than being on par pursue levels.

Laura:

They might be a junior Trent.

Laura:

They're able to provide risk coverage and longer tenors than what is

Laura:

available in the commercial market.

Laura:

So the on-balance sheet lending from the LDC investment platform

Laura:

can help provide some of the financing that's really lacking for

Laura:

this missing middle group of SMEs.

Laura:

They also explain then a next step in the investment, continuing.

Laura:

Of how then as these SMEs continue to grow and they are ready for larger

Laura:

pools of capital that the LDC investment platform has, is working with bamboo

Laura:

capital partners on a missing middle focused build fund, which invests in SMEs.

Laura:

I'm missing middle gap and that's an off balance sheet fund that

Laura:

UNC DF is supporting both in terms of pipeline and fundraising.

Laura:

And that fund then is also able to offer more risk, tolerant and flexible, blended

Laura:

financing to this missing middle SMEs.

Laura:

So it really talks about the role of how this concessional finance can be Capital.

Laura:

How it can help protect investors who are sometimes wary about coming into

Laura:

investments like this, but that by the SMEs in this missing middle, having access

Laura:

to this type of financing, they are then often able to get additional financing

Laura:

from other sources that otherwise they were not able to reach before.

David:

Thank you for that.

David:

So thanks to the three of you.

David:

We're approaching the end of the podcast.

David:

Although of course we could really spend hours talking about this, but all the more

David:

reason why this report, the third edition of the blended finance and the LDCs report

David:

really will make for an important reason.

David:

For practically every kind of actor in the development, finance space.

David:

There's just no question about that.

David:

I'd like to close with just a simple question for all three of you.

David:

And it's just, if you could each name one takeaway that you would want

David:

readers to receive from the report.

David:

Laura, if I could start with you.

Laura:

Thanks, David.

Laura:

I think this is a really important question, to really just sort of

Laura:

get down to what do we need to do to make blended finance work better

Laura:

for at least developed countries?

Laura:

I would say today, it's really important to focus on the local needs.

Laura:

So make sure that you're engaging with the local actors, make sure that

Laura:

you're supporting them so that they are able to develop these projects,

Laura:

get projects to be investor, ready, understand how to structure transactions

Laura:

of this kind, and then make sure that the projects that are being developed

Laura:

are what are needed and demand.

Laura:

From the local government from the local people that it's really in

Laura:

line with the national priorities.

Laura:

And we suggest a number of ways in the report of how to do this, about how

Laura:

to make sure that you're aligning with that local needs and local context.

David:

Thank you.

David:

Thank you,

:

actually, to build on what Laura just said, in terms of engaging

:

with local actors, local governments, I think one of the critical.

:

You know, aspects that I would like all of the people who are reading

:

this report to focus on is the fact of accelerating policy reforms in LDCs

:

to attract further private investment.

:

At the end of the day, we've mentioned in the report, the need

:

for a greater scale, we discussed how blended finance can help to reduce

:

a risk perception, but ultimately.

:

For LDCs to sustainably receive a greater amount of private finance.

:

There's a need to accelerate reforms and specifically on, on different types

:

of sectors to ensure that we making it easier for private investors to come back.

:

We've seen that there was significant private finance, outflows as a

:

result of their crisis, actually record like we've never seen that

:

before, but in order to attract.

:

At a large scale, we won't be able to do that without really introducing

:

the relevant policy reforms.

:

And so, that's a call for action for LDC governments.

:

And I think that's a very powerful one that we are late in this.

David:

Thank you and Valentina, please.

:

Thank, uh, would be a crucial takeaway.

:

I think if something that we discussed this earlier, but I think it's really

:

crucial that if we want to improve on blended finance, United DCS Let's better

:

understand what works and what works.

:

We mean both in managing risks and ensuring returns, but also development

:

impact yourselves and bring them to scale and replicate in, in different countries

:

in contexts where we think you could work.

David:

Thank you so much.

David:

An important report at a critically important time blended finance in the

David:

least developed countries, 2020, it's really been a pleasure and an honor to

David:

have the three coauthors of the report here today to provide their insights.

David:

Laura how's he specialist with United nations capital development fund.

David:

In fact, he done belay policy analyst with OACD and Valentina

David:

Balisi policy analyst with OACD.

David:

Thank you so much for giving your time.

:

Thank you.

David:

Thank you.

David:

Thank you.

David:

Capital Musings is a production of the partnerships, policy and

David:

communications unit of the United nations capital development fund.

David:

Thank you for tuning in and you'll hear from us soon.

Esther:

If you found this episode useful, please spread the word on Twitter.

Esther:

Hashtag Capital Musings, or leave us a review on iTunes reviews, help

Esther:

new listeners discover our podcast.

Esther:

So if you enjoyed listening, please leave a review.

Follow

Links

More Episodes
11. S03.11 Third edition of the Blended Finance in the LDCs report
00:49:12
10. S03.10 Diplomacy Can Transform Lives
00:28:01
9. S03.09 How the lack of financing impacts LDCs in the fight against climate change
00:35:53
8. S03.08 From Making Movies to Nurturing Green Businesses
00:25:00
7. S03.07 From Musician to Impact Leader
00:38:57
6. S03.06 Fiji: Blue and Green Finance Pioneer
00:28:52
5. S03.05 Building a Business Serving the Poor
00:25:51
4. S03.04 Income inequality from the 1% angle
00:47:24
3. S03.03 “A Gift From God:” A Malawian Entrepreneur’s Story
00:27:47
2. S03.02 Catalyzing Infrastructure Investment into Africa: The Role of AFC
00:22:03
1. S03.01 How a Feminist Fund Supports Women in Fiji
00:23:31
37. #37 The Swedish Model: How Sweden’s History and Progressivism Shapes Its Development Assistance
00:43:43
36. #36 Crowdfunding as the “Trampoline” to Formal Capital
00:35:25
35. #35 Activate Your Money: How Women Can Take Control of Their Wealth and Help Improve the World
00:40:01
34. #34 The 1% is Part of the Solution: How Family Offices Can Help Achieve the SDGs
00:38:12
33. #33 Adventure Finance: How to Reimagine A Better System for Funders and Founders
00:28:12
32. #32 A Brief History of the LDCs
00:34:40
31. #31 Private Equity Investing in East Africa: Lessons from India
00:29:47
30. #30 Investing in Development: How the US DFC Funds Growth
00:29:14
29. #29 How to support entrepreneurship in local contexts while being small
00:30:27
28. #28 Why Democracy Matters
00:29:17
27. #27 Letting Go: A New Model of Philanthropy and Impact Investing
00:29:06
26. #26 Breaking Barriers: How a Female Founder Turned VC is Expanding Opportunities For Others
00:29:31
25. #25 How to Recognize and Fight Gender Bias in Investment Decision-Making
00:29:50
24. #24 Diplomacy is Listening: Two Ambassadors Share Their Perspectives
00:34:08
23. #23 Shop Your Values and Your Closet: How to Make the Fashion Industry More Sustainable
00:31:46
22. #22 Changing the Dynamics of Funding Entrepreneurs
00:34:40
21. #21 Impact Investing for NGOS: A New Way to Achieve the Mission
00:40:18
20. #20 Building a Career in International Development Finance
00:33:03
19. #19 Debunking myths about investments, risk and women-led businesses
01:17:45
18. #18 Inclusive Digital Economies Require Inclusive Policies
00:40:52
17. #17 The Good Your Money Can Do: Conscious leadership, stakeholder capitalism and 100% impact portfolio
00:31:23
16. #16 Making Money Moral: A Look at the History of the Impact Investment Industry
00:40:21
15. #15 Managing Infrastructure Assets to Finance Sustainable Development:
00:32:14
14. #14 Closing the Digital Gap: The Benefits of Digitization in West Africa
00:23:31
13. #13 LDCs are the Crucible of the SDGs
00:29:53
12. #12 VC Investing in Female Founders: What’s Taking So Long?
00:27:40
11. #11 How Can Insurance Reduce Climate Risk and help increase financing for At-Risk Countries?
00:35:35
10. #10 Connecting Capital with Purpose: Meet the New Leader of UNCDF
00:35:56
9. #9 Faith, Social Justice and Money with Marvin Owens
00:41:01
8. #8 Investing in Nature’s Capital with Alejandro Litovsky
00:38:31
7. #7 How to Remain in Class with Jenifer Bukohke
00:50:05
6. #6 A Conversation with Karen Fang, Sustainable Finance at Bank of America
00:40:49
5. #5 A Conversation with UNCDF's First Goodwill Ambassador: Sonia Gardner
00:42:49
4. #4 Third edition of the Blended Finance in the LDCs report
00:52:07
3. #3 The Market Solution
00:25:50
2. #2 Why Multilateralism Matters
00:40:46
1. #1 The UN We Need: What Does it Look Like?
00:36:59
17. #17 The Racial Wealth Gap in the US and Lessons for the Last Mile
00:30:09
16. #16 From Brooklyn to Bangladesh—How to Advance Financial Inclusion for Women in Developed and Developing Economies
00:26:44
15. #15 Corporate Sustainability the Decade of Action
00:24:10
14. #14 How Gender-Lens Investment and Economic Development Can Drive Impact Together
00:21:02
13. #13 How the Nepal Earthquake and the Ebola Virus are Shaping The Digital Response to COVID-19
00:23:00
12. #12 Why Local Government Finance is Essential to the COVID-19 Response
00:38:39
11. #11 Why Women's Economic Empowerment Requires Digital Payments?
00:19:30
10. #10 Leaving No Woman Behind in the Digital Era
00:44:32
9. #9 The solutions to unlock the municipal finance solution
00:28:00
8. #8 From Billion to Billions: A conversation with Joan Larrea
00:32:38
7. #7 The Narrow Corridor: A conversation with Daron Acemoglu
00:30:07
6. #6 Financial inclusion for those who have been displaced and excluded
00:20:00
5. #5 Is climate adaptation the only hope, specifically for LDCs?
00:30:38
4. #4 The difference between women’s economic empowerment and women’s economic development
00:27:05
3. #3 Which cities will sustainable development leapfrog?
00:30:32
2. #2 Why isn’t blended finance reaching the LDCs?
00:28:56
1. #1 Welcome to Capital Musings
00:28:27