Blended Financing

Blended finance is an approach that blends scarce public concessional funds with private sector commercial capital to realize innovative, high-impact infrastructure projects that do not yet have a commercial track record.

TARGET USERS: Individuals, Businesses, Industry, Government

KEY CONSIDERATIONS: Blended finance helps rebalance investors’ risk-return profiles and allows the leveraging of public funds to crowd in private sector capital.

MORE INFORMATION: Innovative Finance Solutions for Climate-Smart Infrastructure: New Perspectives on Results-Based Blended Finance for Cities, The World BankInnovative


Lack of waste management infrastructure in many cities and towns in developing economies is largely due to a lack of municipal financial resources and outside investment. Cities and development partners face the challenge of having to make the most effective use of available public finance instruments while disbursing scarce public funds in a way that leverages private sector co-investments. 


Waste management has historically been financed by the public sector, however, public sources of finance alone are falling short of meeting growing waste volumes. The private sector can be a source for additional investments in waste management through Blended Financing Instruments, which can mobilize commercial investment to bridge the financing gap for waste management.

The OECD defines Blended Finance as the strategic use of development finance to mobilize additional finance towards sustainable development in developing countries (OECD, 2018). Blended finance can add value by shifting funds to sustainable development in countries and sectors that have significant investment needs. It can also act as a market building instrument to provide a bridge from reliance on grant and other donor financing towards more self-sustaining financing approaches.


Global Environment Facility (GEF)
In the climate change mitigation space, the GEF and other International Financing Institutions have successfully used Blended Finance Models to finance new technologies in renewable energy, energy efficiency, urban transport, and other related fields. As sustainable energy technologies began achieving significant cost reductions and countries put in place enabling policy environments (e.g., feed-in-tariffs, power purchase agreements), the opportunity for private sector investment expanded greatly.

GEF’s experience shows that Blended Finance is a potent instrument. With the risk assurances provided by blended finance, the private sector invested in projects at a much higher rate than “regular” projects. During 2013-2014, US$175 million from the GEF for blended finance operations mobilized about US$1.1 billion from the private sector. This leverage ratio of 6.3 was several times higher than from GEF’s “regular” operations.

The Coalition for Private Investment in Conservation (CPIC) Finance Initiative
The GEF and the Rockefeller Foundation recently joined forces to initiate work on the CPIC Conservation Finance Initiative, which will focus on scaling-up and demonstrating the value of Blended Finance in conservation, using financial blueprints jointly developed by experienced investors and banking institutions alongside experts in on-the-ground project design in biodiversity and natural resources management. The Conservation Finance Initiative, to be managed by the International Union for Conservation of Nature (IUCN), combines a GEF investment of $8 million non-grant with $2 million of grant funding from the Rockefeller Foundation, and is expected to mobilize up to $100 million of private sector investment. The aim is to overcome hurdles to private sector investment in natural resource management and improve the conservation and sustainable use of biodiversity by demonstrating innovative finance blending models.

Circulate Capital
Circulate Capital is an investment management firm dedicated to financing innovation, companies, and infrastructure that prevent the flow of plastic waste into the world’s ocean while advancing the circular economy. See for more information.

FINILOOP (Financial Inclusion and Improved Livelihoods Out of Plastics) aims to create green jobs and local circular economies by optimizing the sorting and collection of household waste, reducing usage of plastic and improving recycling. 

To improve and scale plastic waste management systems in Asia and Africa, FINILOOP uses the WASTE Business DIAMOND approach: (local) government, households, entrepreneurs, financiers and others organize themselves in such a way that they are able to sustain a local plastic recycling value chain to ensure that citizens can live in a clean and healthy environment. See for more information on Finiloop. 

See also the OECD’s “Making Blended Finance Work for Water and Sanitation“:


Municipal Debt Swaps
Municipal debt swaps are a financial arrangement between a creditor and an indebted city or municipality to cancel debt in exchange for climate-smart investments. In the 1980s, debt swaps were extensively used, particularly at the national level. Such debt swaps could prove to also be a viable and attractive instrument for indebted cities and municipalities seeking to reduce their debt volumes, while local communities would benefit from the additional investments. Results-Based Financing (RBF) can be applied within a debt swap as an incentive for debtors to provide debtor relief and finance more projects.

Environmental Impact Bonds
Environmental impact bonds (EIBs) are an innovative finance technique to apply results based financing contracts to green infrastructure projects. EIBs are tax-exempt, pay-for-success instruments, allowing governments to limit their losses if projects turn out unsuccessful, thus encouraging them to try novel climate-smart infrastructure solutions. However, EIBs are not really bonds because they are not a fixed income borrowing instrument with a steady stream of repayments, nor can they be traded. Instead, EIBs are a form of Public-Private Partnership (PPP) with performance-based contracting. Impact Bonds have been widely used in the US and UK and several less-developed countries are now piloting the approach targeting social outcomes. EIBs can leverage the classic performance-based contracting approach in infrastructure development and allow municipal and city governments to partner with private sector investors.

Crowd-based Financing
Crowd-based financing sources capital from communities and individuals (crowd), and experiences from US cities indicate that could be an alternative finance source for climate-smart urban infrastructure investments. Crowd-based financing is a relatively new approach that has been predominantly used in the technology sector. Crowd-based financing mitigates several investment barriers that are inherent in traditional project finance in many cases by applying micro-finance practices but also brings additional considerations in project structuring, especially for communities with low income and low institutional capacity.


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