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Private sector partnerships

Private finance for development

Working with the private sector to unlock finance for development

Australia’s Official Development Assistance (ODA) can play an important role in catalysing private finance for development across the Indo-Pacific.

Blended finance, including by using loans, guarantees and equity, and working in partnership with impact investors, is playing an increasingly important role in supporting inclusive economic growth in Australia’s region. In line with Partnerships for Recovery, DFAT is exploring new ways to work with business and investors using new tools and approaches, building on our existing experience.

What is blended finance?

Blended finance uses public finance to mobilise additional finance from non-government investors to achieve development outcomes. Internationally, governments are increasingly using blended finance to maximise the impact of limited development program budgets. Typically, blended finance involves the use of non-grant finance instruments such as debt, loans and guarantees to help de-risk investments and encourage other capital to co-invest.

In addition to supporting multilateral development banks like the Asian Development Bank and International Finance Corporation, the Australian development program is beginning to trial more direct blended finance approaches. Investing in Women uses grants to catalyse private investment in women owned small and medium enterprises (SMEs) in Indonesia, Vietnam and the Philippines. While initiatives such as the Emerging Markets Impact Investment Fund (EMIIF) use loans, equity and guarantees to crowd-in private investment into SMEs in our region.

Emerging Markets Impact Investment Fund

The $40 million Emerging Markets Impact Investment Fund (EMIIF) is one way that Australia is providing finance to promote development and prosperity in our region. EMIIF will provide advice and finance such as loans to help hundreds of small and medium enterprises (SMEs) to grow. We focus on these enterprises that have 250 or fewer employees as they are the ‘engine room’ of growth: it is estimated that they employ seven in ten people in the workforce. This support will help people in Southeast Asia and Pacific island countries recover from the devastating economic and social impact of the COVID-19 pandemic.

The fund will encourage investment in enterprises that are women-led, supply products or services that benefit women, or adopt gender-friendly workplace policies. Our approach—called  ‘gender lens investing’—will set a standard for financing that also seeks to achieve an impact.

Established on 1 July 2020, EMIIF is a ‘fund of funds’ (see Figure 1), which means it will invest in SME funds or financial intermediaries that, in turn, invest in SMEs. EMIIF funds will provide:

  • Direct finance (loans, equity, guarantees) to invest in SME funds, aiming be a first investor (‘anchor’) to attract ( ‘crowd in’) further capital, and
  • Technical advice, such as how to find and expand into new markets, take advantage of digital technologies or invest with a gender lens, to support SME funds and underlying SMEs.

Over time, EMIIF’s investments will receive a return, those funds will then be re-invested into other SMEs, helping Australia’s development dollar to go further.

 

The diagram demonstrates how EMIIF works. EMIIF has two parts, investment fund and technical assistance. Investment funds flow into financial intermediaries, including SME funds. From there the funds flow to SMEs. Technical assistance is provided to both financial intermediaries, and to SMEs directly. Through investment and technical assistance, EMIIF hopes to ‘crowd in’ other investors at the fund level. Through SMEs EMIIF reaches a diverse range of beneficiaries, including people of various ages, gender

The investment manager Sarona are now looking for investment opportunities with financial intermediaries working with SMEs in Southeast Asia and the Pacific. You can find more information here. Investment related inquiries may be directed to emiif@saronafund.com.

Convergence

Convergence is the global network for blended finance. It generates blended finance data, intelligence, and deal flow to increase private sector investment in developing countries. Its global membership includes public, private, and philanthropic investors as well as sponsors of transactions and funds.

Australia supports Convergence with core funding to support its overall operations and bring their global expertise to our region. DFAT has also provided $3.5 million to support feasibility and design work for blended finance solutions in the Indo-Pacific. The initial focus of this support will be on sustainable and resilient infrastructure and gender equality.

DFAT’s design funding window supports financial intermediaries to structure deals that support sustainable development while matching the capabilities and risk/return appetites of a diverse landscape of investors – commercial banks, superannuation funds, insurance firms, impact investors, development finance institutions and donor agencies. This allows multiple investment opportunities to be aggregated into a financing vehicle that can offer each type of investor a piece of the deal that fits their risk/return and/or development impact requirements. These structures allow the public and private sectors to work together to achieve social and environmental impact.

Further information is available at Convergence finance.

Private Financing Advisory Network

The Private Financing Advisory Network (PFAN) is a multi-donor initiative that identifies promising clean energy and climate businesses in emerging markets. Through its network of local and global coaches, it provides mentoring, networks and technical assistance to help these businesses attract investment. 

Australia provides support to bring this model into the Indo-Pacific. PFAN has been coaching and connecting SMEs to finance in Asia and Africa since 2006. It is now adapting its model to support the renewable energy and entrepreneurial ecosystem in the Pacific.

PFAN is funded by the Governments of Australia, Austria, Japan, Norway, Sweden and the United States. It is hosted by the United Nations Industrial Development Organization (UNIDO) and the Renewable Energy and Energy Efficiency Partnership (REEEP).

Further information is available at PFAN.

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