Achieving universal access to water and sanitation by 2030 – how can blended finance help? | Source: World Bank Water Blog, August 29, 2016 |
An excerpt: What is “blended finance”?
OECD refers to blended finance as ‘the strategic use of development finance and philanthropic funds to mobilize private capital flows to emerging and frontier markets’. Blended finance in the water sector has the potential of mobilizing private sector financing for credit-worthy or close to credit-worthy investments. This would allow reallocating public funds to other areas where public subsidies are likely to be needed.
Commercial finance usually brings requirements for greater investment discipline and transparency, which in turn could support improved efficiency in the sector, an objective for most water sector reform efforts around the world.
Domestic commercial finance in particular can be mobilized in local currency, which reduces the foreign exchange risk and can bring down transaction costs, particularly for smaller scale investments to improve efficiency that can generate rapid returns (such as replacing meters or fixing leaks).
Blended finance has traditionally been used as a tool to stimulate interest from the commercial financial sector, with the use of concessional finance then tapering off over time to avoid distorting markets. Given the embedded distortions in the WSS sector in developing countries, where financing is predominantly based on subsidized public funds, it will be necessary to move towards mobilizing more commercial funds over time. Blended finance can be a stepping-stone in that transition.
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