Current estimates put the cost of meeting the 17 goals at $2.5 trillion per year in new investment, more than the economic output of the entire African continent.
To scale the mountain, the development finance community needs to encourage greater participation by private banks by ensuring the efficient and innovative use of money loaned or invested to support the goals.
Blended finance, defined as “the strategic use of development finance for the mobilization of additional finance toward sustainable development in developing countries,” can play a critical role in attracting private capital. That is not to say that blended finance is something new. It has been around for some time in the form of financial instruments that address risks the private sector is unwilling to take on its own.
If deployed effectively, blended finance could realize the commitments made in the Addis Ababa Action Agenda and bridge the funding gap to achieve the SDGs. The blended finance umbrella includes a variety of financial instruments, and each has its merits and disadvantages. While each project is unique and financing always should be tailored to the project, the market tells us that some products are more attractive to the private sector and are better from a development perspective.
According to an Organization for Economic Cooperation and Development (OECD) survey, guarantees (financial products that minimize or remove risk for investors) have particular promise. Over the four years surveyed (2012-2015), they stood out as a key instrument in attracting private capital.
For example, in 2015, a Milken Institute analysis of multilateral institutions indicated that guarantees represent about 5 percent of their commitments but generate approximately 45 percent of capital mobilized from the private sector.