Blended Finance: Narrowing the Development Finance Gap in Asia

Blended Finance: Narrowing the Development Finance Gap in Asia

Expert opinion
Deputy Director of Research,Centre for Asian Philanthropy and So

When it comes to development financing, blended finance has become the flavour of the day. People are excited about the notion of leveraging sums of private capital and they should be. Blended finance is means by which to significantly increase the amount of capital being brought to bear on solving some of our world’s most complicated challenges. Since it was first recognized as a solution to address the SDG funding gap at the Third International Conference on Financing for Development in 2015 in Addis Ababa, blended finance has gained serious attention. According to the OECD there are more than 180 blended finance funds and facilities with over $60.2 billion in assets invested across developing countries.[1] Most recently, at COP 26 UN Climate envoy Mark Carney called for more blended finance facilities to help mobilize $1 trillion of private capital per year for climate financing. Clearly, this is a trend which is deservedly attracting great interest and excitement.

Yet alongside this excitement, there is also a lot of confusion. About what blended finance is and how it works. Conversations about blended finance also have a tendency to get stuck in financial terms and jargon. But getting stymied into definitions to what is and what isn't blended finance is missing the point. If we take a step back the gist is clear: the merging of public and private funding to drive more private capital towards social and environmental issues.

Despite the confusion, blended finance is gaining serious traction including in Asia, which is now the second most targeted region for these types of innovative financing schemes accounting for 36% of global blended finance transactions in 2020.[2]Some Asian economies are leading the way, with India, Indonesia, Myanmar and Vietnam among the top 10 global economies by deal count within this space.[3] In order to paint a clearer picture of the blended finance landscape in Asia, the Centre for Asian Philanthropy and Society (CAPS) has pulled together a report (accessible here) which shows the types and trends of utilizing private capital alongside public funding to do good. 

Most commonly we are seeing the emergence of multi-layered public-private funds. In these funds, first- and/or second-layer investors—typically from the government or philanthropic sector—absorb the first risk thereby attracting traditionally risk-averse private investors into the senior investment tranche. Take for example the Japan ASEAN Women Empowerment Fund which mobilized $120 million from private investors to provide loans to microfinance institutions supporting female entrepreneurs in south-east Asia.

Another innovative example is the Women's Livelihood Bond (WLB) series, a social bond that used blended finance structures to attract private funding to support women's economic empowerment. The series, which now includes three bonds have unlocked US$48.2 million and is expected to benefit 3 million women across Asia by 2023. The region has seen a recent surge in such social as well as green bonds as governments are recognizing them as key financing mechanisms for meeting climate change targets and mitigating the socio-economic impact of COVD-19. While this segment of the bond market has traditionally been dominated by issuers in China, Japan and Korea, other economies such as Thailand are starting to catch on.

We are also seeing Asian governments utilize guarantees to mobilize private capital. For example in Cambodia where the government launched a US$200 million credit guarantee fund for SMEs in 2021. By acting as collateral for 70-80% of the loan in case of a default, the guarantee fund helps make loans to SMEs less risky for private lenders.

In blended finance, philanthropic capital often takes the first loss position decreasing the risk for more traditional private sector investors. The examples above are emblematic of this tactic. But the use of private capital can also de-risk innovations for government investors. Take for example the Yayasan AMIR Trust Schools Program in Malaysia in which the country’s sovereign wealth fund Khazanah took the initial risk by providing the start-up capital needed to roll out new teaching and student-centric learning models in an extensive pilot program. The Malaysian government was able to witness, through clear metrics, the efficacy of the program before agreeing to scale across one state with the ultimate goal, the whole country.

Another such example are pay-for success models such as Social Impact Bonds (SIB). In a SIB, the outcome payer (usually government) agrees to reimburse the upfront investor (usually a private investor or philanthropic entity) for an innovative project run by a service provider (usually a non-profit) if it succeeds. Hong Kong recently saw the launch of the first SIB and India and Korea are also seeing developments in this space.

Another mechanism to incentivize the flow of private capital to meet social needs is the establishment of national platforms to facilitate blended finance deal flow. Here again, we see two exciting examples Asian examples. In Indonesia, the SDG Indonesia One was set up to allow for new players to enter into the financing of large infrastructure projects which address compliance with the Sustainable Development Goals. Thus far, $3.03 billion in commitments have been raised.

And India recently approved the creation of a Social Stock Exchange (SSE) which enables tools and processes available in traditional stock exchanges to be utilized for the social sector as well. Similar to other models, the Indian SSE will create a regulated marketplace for private capital to invest in eligible social enterprises.

The rising interest in blended finance among the private and public sector tells us that the number of blended finance transactions in the region is only set to increase. But for blended finance to grow, it needs a supportive policy environment. Governments in the region should heed the interest and optimism and do more to encourage and facilitate the types of financial innovation blended finance offers. They can do this both by providing concessional capital as well as set up an enabling regulatory environment to align incentives around doing good

The time for further action is right and we are at a sweet spot to do more. COVID-19 has magnified the need for blended finance and governments across Asia have every reason to jump on the bandwagon. Blended finance offers a win-win for all involved and governments should heed to call and channel the surge of interest in blended finance into real-world impact.


[1] Basile, I., & Dutra, J. (2019). Blended Finance Funds and Facilities: 2018 Survey Results. OECD Development Co-operation Working Papers, no. 59. Retrieved from

[2] Convergence. (2021). The State of Blended Finance 2021. Retrieved from

[3] ibid