Helsinki & VaasaDecember 14-15, 2017

BLENDED FINANCE AT IFC Scaling Up Private Sector Investments

What is Blended Finance at IFC?

Grants

Early stage equity with insufficient

returns

Guarantee (e.g., first loss for a portfolio)

Senior or mezzanine

debt on sub-commercial

terms

Market-based Financing

2

Blended

Finance

Concessional

Co-investmentIFC Investment

Concessional co-investment = Financing at softer

terms through price, tenor, rank, security or a

combination to reduce project risk

Blended Finance = Co-investing concessional funds to enable high-impact projects

Overview of Blended Finance

3

Blended Finance refers to the strategic use of donor funds to attract private capital towards investments that have a high development impact

ME

CH

AN

ISM

PU

RP

OS

E

Risk Sharing

Guarantees cover a

portion of losses on

loans to SMEs

Lowers risks to

financial institutions to

move into new markets

and pursue SME

segments perceived to

be higher risk

Senior or

Subordinated Loans

Funding to financial

institutions, including

dedicated credit lines for

reaching specific SME

segments such as women-

owned SMEs

Encourages increased

lending to SMEs

Performance-Based

Rebates

Flexible rebates linked

to meeting specific

performance targets

related to growing

SME portfolios

Incentives to financial

institutions for

investments in ramping

up lending to under-

served segments

Blended Finance investment services include:B

EN

EF

ITS Reduced loan pricing;

reduced local currency

pricing; lengthened

maturities and/or grace

periods

Provide performance

incentives to financial

institutions for

achieving targets in

reaching specified

SME/other segments

Cover first loss, and

thereby deliver

acceptable pricing to

the client

Principles for Deploying Blended Finance

4

Lower risk commercial

activities

(Commercial investors)

Higher risk commercial

activities (DFIs)

Not fully commercial

Gap: In need of

temporary subsidy

Not fully commercial

Gap: Needs long-term

subsidy

Permanent Subsidy

(Government/NGOs)

Fu

lly C

om

me

rcia

lR

eq

uir

es s

ub

sid

y

Are

a o

f F

oc

us

Enhanced Principles for Blended Finance

Additionality & Rationale for Blended Concessional Finance

Crowding-in and Minimum Concessionality

Commercial Sustainability

Reinforcing Markets

1

2

3

4

Blended Finance supports projects that would not happen on purely commercial terms

Promoting High Standards

5

For more details and infographic download: ifc.org/blendedfinanceprinciples

IFC’S BLENDED FINANCE FACILITIES

Climate: Helping to Scale New Technology

Challenge:High costs, first mover challenges in untested markets and new technology

Solution: Blended Finance to help rebalance risk-reward, and de-risk project risks

Results: Reduction of ~3.6 million tons of CO2e per year, equivalent to 1 coal plant, 760k cars, 380K homes

7

SME Finance: Growing and Creating Jobs

Challenge:Severe lack of access to finance, particularly for women owned SMEs

Solution:Performance based rebates, and risk sharing facilities to encourage lending to SMEs

Results:US$6.4 billion in new SME loans, contributing to ~414,000 news jobs created

8

Agriculture and Food Security: Reaching small-scale farmers

Challenge:Small-scale farmers lack access to proper agricultural inputs, and credit

Solution:Blended Finance to help invest in non-traditional lenders to encourage lending to farmers

Result:~3.3 million farmers reached, mostly semi-commercial smallholders and subsistence farmers

IDA Private Sector Window: Mobilizing private sector investment in the most challenging and FCS markets

Challenge:High risks faced by early movers prevent pioneering investments in low-income IDA, FCS

Solution:Deploying a de-risking tool to reduce the risks for private sector investments at the transaction level

Results:High-impact, pioneering investments and creation of markets

STORIES OF IMPACT

Examples from Blended Finance

11

Enable First Sugar Cane Trash Biomass Project in the Philippines

Project Background:

Help achieve financial close for three biomass power

plants aggregating 70MW, the first in the world to use

sugar cane trash as feedstock.

Use of Blended Finance:

Blended finance with a step-down pricing to help

cushion the risks associated with (i) the use of an

untested feedstock for power generation and (ii) the first

biomass project in the Philippines to be paid an

untested feed-in-tariff.

Expected Market Transformation:

The project is expected to demonstrate the viability of

biomass power projects globally using sugar cane trash

as feedstock.

Catalyzing Major Solar PV Growth in Thailand

Project Background:

In 2008, solar energy accounted for less than 2 MW of installed capacity in Thailand. While solar

technology costs started to fall and the government began providing incentives for solar developers,

it was practically impossible to secure financing from local banks as there was no track record of

performance of this technology in Thailand.

Use of Blended Finance:

Blended finance provided a loan with concessional pricing and longer tenor alongside IFC’s own

account loan to support expansion of one of the early solar PV developers in Thailand, a solar

power company, by 12MW.

Blended finance was used to help reduce long-term project finance risks for lenders and sent

positive signals to the local financial markets for utility-scale solar.

12

6

24 24

90

109

0

50

100

150

200

250

300

2010 2011 2012 2013 2014

Solar PV Capacity in Thailand (MW)

Other Projects

BF-suported Projects

Cumulative Capacity

Expected Market Transformation:

The financial success of these early solar farms has helped

drive private investments in Thailand’s clean energy sector.

Today, the company is one of Thailand’s largest solar farm

developers with over 250 MW installed solar capacity and

plans to expand beyond Thailand.

* This project was a winner of UNFCCC Momentum for Change Lighthouse Activities Award in 2014

13

For further information, contact:

Kruskaia Sierra-EscalanteManager, IFC Blended Finance

www.ifc.org/blendedfinance