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Australia’s development program

Blended Finance

DFAT has been slowly building a portfolio of blended finance mechanisms in response to the need to mobilise more private finance towards development outcomes in the region. Recognising the effectiveness of this approach, the Government has endorsed the Development Finance Review's recommendation to scale up Australia's blended finance portfolio to drive greater mobilisation of private finance towards development, climate, and gender equality outcomes in the region.

Other recommendations that relate to DFAT's blended finance portfolio include, increasing:

  • the investment cap of the Emerging Markets Impact Investment Fund to AUD 250 million and transitioning its branding to Australian Development Investments (ADI)
  • its focus on climate change and climate finance
  • engagement with private finance community including institutional, philanthropic and impact investors
  • transparency of Australia's development financing
  • use of gender lens investing
  • social inclusion outcomes in new investments.

What is Blended Finance?

Blended finance uses public or philanthropic capital to draw in private sector investment to achieve Australia's development goals. Blended finance puts public or philanthropic capital on the table to encourage private money to increase create larger investments that help achieve the Sustainable Development Goals.

Private investment is often reluctant to invest in countries they perceive as high risk. By providing higher risk capital, blended finance makes investing in initiatives that have high development benefits more attractive to private capital.

The not-for-profit blended finance network, Convergence, calculates that blended finance has mobilised approximately USD186 billion in global capital towards sustainable development since 2014.

•	Figure 1: Chart depicting flow of public and private funds towards blended finance transactions supporting the United Nations’ Sustainable Development Goals.

Source: OECD

Blended finance portfolio performance

The Government's decision to increase DFAT’s existing blended finance portfolio is based on a 10 year track record of performance. The portfolio has effectively demonstrated how blended finance can drive Australia's climate and development objectives in the region.

 

Figure 2: Capital mobilisation across key DFAT blended finance investment initiatives

The Australian Development Program's Blended Finance Portfolio

The Blended Finance portfolio is comprised of investment mechanisms (those make the actual financial investments) as well as partnerships that are focussed on developing the pipeline of investible deals. In most instances, multiple components of the portfolio are active in the development and subsequent investment in  deals.

Australian Development Investments (ADI)

Australian Development Investments (ADI) is Australia's AUD250 million impact investment fund. ADI greatly expands the Australian Government's capacity to mobilise private sector investment into small and medium enterprises in the region create climate and gender outcomes. ADI provides early stage and concessional investment to impact investment funds, which in turn give critical early-stage finance to businesses in the Indo-Pacific.

This finance is essential for businesses to innovate, grow their employment, and deliver goods and services to their communities. By blending Official Development Assistance and private finance, ADI sends a powerful signal to the finance sector about the opportunities to generate financial returns and development impact in the region. ADI builds on the results of the Emerging Markets Impact Investment Fund (EMIIF) pilot, including its ability to reinvest the returns made from its investments.

Private Infrastructure Development Group (PIDG)

The Private Infrastructure Development Group (PIDG) is an infrastructure project developer and investor, established in 2012, which mobilises private investment in sustainable and inclusive infrastructure. PIDG uses public finance to address early-stage project risks resulting from development, currency, commercial and safeguards to attract private finance. Australia's contributions to PIDG are helping drive its expansion into Southeast Asia, providing Australia and its partners the full range of financing instruments to de-risk private and likeminded financing, and enable project proposals to attract commercial financing. Australia's co-ownership and financing of PIDG also supports two of the PIDG group companies: InfraCo Asia and GuarantCo.

Australian Climate Finance Partnership (ACFP)

The Australian Climate Finance Partnership (ACFP) is Australia's AUD 140 million concessional financing facility managed by the Asian Development Bank (ADB). The ACFP helps mobilise private sector investment into low emission, climate-resilient solutions for developing countries in the Pacific and Southeast Asia. Its relationship with the ADB also helps to mobilise ADB's own co-investment into ACFP supported transactions.

Convergence

Convergence is the pre-eminent global network for blended finance – managing the world's most comprehensive database of blended finance transactions. This includes historical data, as well as current and prospective deals. It also hosts the largest blended finance match making platform – connecting project proponents with potential financiers both public and private.

Australia's new 3-year partnership with converge provides DFAT and its partners (including other government partners and private financing partners) with access to Convergence's analytical, technical support and training capabilities. This partnership will play an increasingly significant role in supporting Australia's capacity to scale its blended finance response to climate and development needs in the region.

Business Partnerships Platform (BPP)

The Business Partnerships Platform (BPP) supports direct partnerships between the Australian Government and inclusive and sustainable businesses to advance Australian priorities and deliver development and climate impacts.

BPP partnerships have catalysed more than $25 million in private sector finance and resources to date, with current active partnerships set to catalyse a further $19.6 million. These partnerships support scalable business models to help drive transition to a greener, more inclusive economy. Since 2016, BPP has created 57 partnerships across 137 organisations representing 10 sectors and industries operating in 19 countries.

Portfolio Performance Management

Blended Finance Learning Program (BFLP)

The Blended Finance Learning Program (BFLP) is a central part of DFAT's blended finance performance management framework – helping us to maintain oversight and monitoring of the blended finance portfolio, provide greater transparency and support program financing designs.

 

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