The Pros and Cons of Blended Finance

A global effort is underway to promote blended finance. But its development benefits are minimal and it shifts investment from developing countries to more lucrative activities in middle-income countries. Even worse, blended finance encourages investment in sectors that are negatively impacting development, such as industry and extractive industries. In addition, it is likely to increase the Canadian government’s ODA contribution to the UN’s 0.7% of GNI commitment, despite little added value to the developing world.

Adrian Murray

A growing number of governments, including the Canadian government, are embracing the concept of blended finance. It is a strategy that combines private capital and development finance, couched in the context of the UN Sustainable Development Goals and development narrative. Despite its benefits, blended finance raises concerns. What are the downsides of this new approach? Below, we outline some of the common concerns.

The idea of leveraging official development assistance and private capital is not new. It is, however, a long-established strategy that seeks to resolve the contradictions of neoliberal development by shifting investment from the poorest countries to middle-income ones. The problem with this strategy is that it diverts capital away from developing countries and into more profitable sectors in middle-income countries. Moreover, this strategy often results in a shift away from development to the richer world.

The Pros and Cons of Blended Finance
The Pros and Cons of Blended Finance

Susan Spronk

Blended finance is a strategy for leveraging private capital for development. It has been couched in the context of UN Sustainable Development Goals and the development narrative. However, this new model of development financing raises several questions. First, what exactly is blended finance? And why is it such a concern? What are its advantages and disadvantages? This article will examine both. And, at the same time, explain why it is important for the development sector.

This article examines the Canadian government’s push for blended finance development. While blended finance has been receiving much global attention in recent years, it does not seem to add much in terms of development. It is a form of alternative finance that shifts investment away from the poorest countries to more profitable economic activities in middle-income nations. It also encourages countries to invest in sectors with a negative impact on development, such as finance, industry, and extractive industries. But it is also possible to use blended finance to boost Canada’s ODA to meet the UN’s commitment of 0.7% of GNI.

The Pros and Cons of Blended Finance
The Pros and Cons of Blended Finance

Professor Susan Spronk

The Blended Finance Project is an alliance of academics, unions and non-governmental organizations that have argued against the privatization of foreign aid and in favor of more equitable public alternatives. This interview has been edited for length and clarity. Professor Spronk discusses the impact of private sector development investments and questions global development governance. While she argues against the privatization of development aid, she maintains that it has significant benefits.


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