Executive summary

This 2020 edition of the UNCDF-OECD Blended Finance in the Least Developed Countries (LDCs) report analyses the state of blended finance in LDCs and its role in recovering and building forward better from the COVID-19 crisis. The report also provides a range of expert insights on the opportunities, innovations and risks of deploying blended finance in LDCs, and proposes an Action Agenda to chart a new path to further the mobilisation of support and resources for LDCs. Main takeaways include the following.

LDCs are facing mounting pressure to respond to the COVID-19 pandemic, with widening financing gaps to achieve the Sustainable Development Goals (SDGs). The health crisis is still unfolding in LDCs, at an uncertain yet alarming pace and with a variety of far-reaching implications across countries. What is clear is that all LDCs face severe socio-economic impacts from the global economic crisis, due to domestic and global demand shocks (see Chapters 2 and 3 on the impact of COVID-19 in LDCs).

With development finance accounting for a prominent share of the financing for sustainable development in LDCs, official development assistance (ODA) continues to be a critically important source of finance for these countries. Donor governments are falling short of their commitment on ODA to LDCs, and they should recommit to achieving their targets in light of the unprecedented impact of the COVID-19 pandemic and ensuing economic crisis in LDCs (see Chapter 2 on the state of financing for sustainable development in LDCs).

Although increasing in volume, only 6% of private finance mobilised by development finance interventions between 2012 and 2018 was in LDCs. In 2018 alone, USD 3.8 billion was mobilised in LDCs, accounting for about 7.5% of the total. Multilateral institutions mobilised the largest share of private finance in LDCs (see Chapter 3 on the state of blended finance in LDCs).

Guarantees have continued to be the instruments that mobilised the highest share (46%) of private finance in LDCs in 2017–2018, although to a lesser extent than in previous years. Guarantees were followed by direct investment in companies, and special purpose vehicles, which mobilised 24% of the private finance mobilised in LDCs in 2017–2018.

Private finance mobilised in LDCs is concentrated in a handful of revenue-generating sectors with higher profitability prospects, such as energy, banking and financial services. Sectors such as agriculture and water and sanitation are less targeted, despite their crucial role in LDCs’ economies.

While grant support remains critical in the immediate and short-term response to the COVID-19 crisis, blended finance can play a key role to support LDCs in mobilising resources for the medium- to long-term recovery. This will require immediate action to support LDCs to start building a pipeline of bankable projects that both accelerate the achievement of the SDGs and can attract investors’ attention. For blended finance to be effective for the COVID-19 recovery, the wide range of actors involved (donors, DFIs, multilateral development banks, impact and commercial investors, local financial institutions, national and local governments, etc.) should focus on supporting national development priorities, including job creation and SME-development, emphasise gender equality, support health systems, and target sectors that are critical for inclusive, resilient and sustainable development.

Recognising the complementary roles of public and private finance, the report proposes below four areas of action needed from all stakeholders (see the full Action Agenda in the next chapter). The Action Agenda can help to inform discussions at the Fifth United Nations Conference on the Least Developed Countries (LDC5), to mobilise additional international support measures and action in favour of LDCs.

  1. 1. Support domestic financial ecosystems and market development

Blended finance should be used strategically to develop sustainable domestic market systems and build the capacity of local capital market actors, by:

  • examining a project’s systemic effects on the overall market;

  • supporting local capacity-building to improve the enabling environment;

  • developing local capital markets, promoting local currency financing solutions and greater mobilisation of local investors;

  • strengthening the role of national development banks in deploying blended finance.

  1. 2. Design blended finance solutions to reach the “last mile”

Blended finance actors should design innovative structures that target the hardest to reach and most underserved areas, by:

  • focusing on risk mitigation tools;

  • engaging local stakeholders to identify project opportunities in line with local needs;

  • targeting the “missing middle” enterprises;

  • employing digital financial solutions;

  • ensuring the accessibility and affordability of products and services developed with the support of blended finance investments.

  1. 3. Improve impact management and measurement, and promote transparency

Lack of transparency of blended finance operations severely hinders the further growth and improvement of the blended finance market. Blended finance actors should focus on:

  • improving impact management and measurement practices;

  • increasing the transparency of existing investments;

  • promoting collaboration and the sharing of knowledge, best practices and lessons learned.

  1. 4. Bring blended finance to large scale through systemic and transformational approaches

Supporting transformation towards more sustainable and resilient economies as LDCs seek to build forward better post-COVID-19 requires blended finance to move towards more systemic approaches, by:

  • incorporating blended finance into co-ordinated multilateral crisis responses, national recovery, and sustainable development plans;

  • adopting a portfolio approach (through vehicles, platforms) for scalable solutions;

    prioritising scalable projects in sectors driving an inclusive, sustainable, green and resilient recovery.


[2] OECD (2020), Global Outlook on Financing for Sustainable Development 2021: A New Way to Invest for People and Planet, OECD Publishing, Paris, https://dx.doi.org/10.1787/e3c30a9a-en.

[1] UN (2020), Initiative on Financing for Development in the Era of COVID-19 and Beyond, https://www.un.org/en/coronavirus/financing-development.

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