From Billions to Trillions
In the lead up to the Paris Climate Summit of 2015, it became clear that efforts at achieving the ambitious targets of the SDG’s, would require equally ambitious efforts at utilising the “billions” in ODA (official Development Assistance) and available development resources to attract, leverage, and mobilize “trillions” in investments of all kinds: public and private, national and global, in both capital and capacity.
In April 2015, the African Development Bank (AfDB), Asian Development Bank (AsDB), European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB), Inter- American Development Bank Group (IDBG), and the World Bank Group (WBG), together known as the MDBs, and the International Monetary Fund (IMF) presented a joint vision of what they could do, within their respective institutional mandates, to support and finance achievement of the SDGs.
According to the official report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the transfer of Real Resources to Developing Countries;
The financial structure and financing capabilities of the MDBs and the IMF enable them to leverage their capital to provide finance in many forms (from grants to “blended” concessional finance to loans to guarantees to equity investment) and purposes. The non-concessional institutions/windows of the MDBs are funded efficiently by small amounts of paid-in capital, in many cases backed by callable capital.
Leveraging these amounts, the banking model of the MDBs mobilizes substantial resources from the capital markets at much lower (emphasis mine) interest rates reflecting their strong financial structure and high ratings. In addition, grant and concessional funding from shareholders and other development partners supports concessional financing for the poorest, fragile and conflict-affected states. The MDBs received inflows from their shareholders of around US$ 38 billion in 2012.4 These flows allowed the MDBs to make public and private disbursements of US$ 99 billion in developing countries in 2013, and to approve new commitments for US$ 173 billion.
According to the IDA; the World Bank’s fund for the poorest, the objective of its Blended Finance Facility (BFF) is to mitigate the various financial risks associated with investments in SMEs and agribusiness as well as pioneer investments across sectors to unlock private sector opportunities that promote productivity improvements and innovation with strong development impact. The BFF builds on and expands IFC’s existing blended finance platforms, including the Blended Climate Finance programs, the private sector window of the Global Agriculture and Food Security Program (GAFSP), and the SME Finance facilities, and extends support into new high-impact sectors.
IDA Blended Finance Instruments Souce: ida.worldbank.org
Existing IFC financial products will be eligible for clients under the facility, including senior loans, subordinated loans, equity (direct and through funds), preferred equity and guarantees (e.g., first-loss in risk sharing facilities). The BFF will enable IFC to undertake additional projects by providing: i) blended financing to enable IFC to support projects which are not yet able to meet fully commercial financing terms, but which promise to be sustainable and have strong development impact; and/or ii) risk mitigation, through subordination, deferrals, provision of first loss, and structuring flexibility (e.g. longer tenors) to enable IFC to support higher risk projects. Long tenors are particularly important for green-field projects, which typically have higher risk than expansion projects, but which are more common in PSW-eligible markets. The facility could incur losses only up to the designated allocation of PSW’s resources.
So how can such instruments be leveraged to finance the delivery of affordable green housing in developing countries such as Nigeria?