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 investment manager Sarona are now looking for investment opportunities with financial intermediaries working with SMEs in Southeast Asia and the Pacific.
Design document:
Investment related inquiries may be directed to emiif@saronafund.com.
Australian Climate Finance Partnership
The Australian Climate Finance Partnership (ACFP) is an Australian Government initiative with the Asian Development Bank (ADB) providing up to $140 million to accelerate private sector investment in low emission, climate-resilient solutions for Pacific island countries and Southeast Asia.
The ACFP was announced by the Foreign Minister in March 2021. It provides concessional, equity, guarantees, and local currency solutions to bring private sector finance into high demonstration impact projects that would not otherwise have occurred. The Fund will aim to partially offset the incremental costs associated with climate proofing infrastructure and agricultural systems.
In addition to climate outcomes, ACFP will catalyse much needed private investment in support of COVID-19 economic recovery across the region. Projects will also promote gender equality and better economic opportunities for women and girls.
The ACFP delivers on the Prime Minister's Australian Private Sector Mobilisation Climate Fund commitment at the Pacific Islands Forum in August 2019.
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.
Private Infrastructure Development Group
The Private Infrastructure Development Group (PIDG) was established to address market failures in the financing of infrastructure in developing countries. It uses public finance from its six donor government partners and the International Finance Corporation to address early stage project development risk, currency risk, commercial risk and safeguard risk to catalyse private finance into much needed infrastructure in developing countries. By deploying USD3.6 billion of PIDG funding over its 16 years of operation the PIDG has catalysed USD5.8 billion of investment from the private sector and development finance institutions. As a result, PIDG has delivered accessible, reliable and sustainable infrastructure across 183 projects, creating more than 240,000 long-term jobs and providing 243 million people with access to new or improved infrastructure.
Australia has provided AU$54 million to the PIDG since 2012. The PIDG has a global mandate but Australia's funding has been directed to two companies that sit under the PIDG group: InfraCo Asia Development and GuarantCo. InfraCo Asia Development focusses on early stage project development in South and Southeast Asia only. GuarantCo has a global mandate to support local currency financing solutions. Australia's contribution has helped establish GuarantCo in the Indo-Pacific, including a regional office in Singapore.
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).