The guidance highlights some of the barriers to scaling blended finance and provides strategic advice and practical insights to help policymakers and practitioners use it more effectively.
The Organisation for Economic Cooperation and Development (OECD) has published a report that addresses some of the challenges holding back the scale-up of blended finance as a tool to mobilise private investment in the developing world.
In its ‘Blended Finance Guidance 2025‘ report, the OECD’s Development Assistance Committee revises and expands guidance it published in 2020 to reflect lessons learned in the interim and a desire to kickstart a sector that has yet to overcome barriers preventing it making a significant contribution to global development investment, even if it has become a core element of cooperation on international development, according to the organisation.
The total amount of private finance mobilised by official development finance reached an annual $70bn (€60bn) in 2023 with an average annual increase over the previous six years of $3.35bn, according to OECD data. By contrast, overall financing needed to meet the UN Sustainable Development Goals could reach $6.4trn by 2030, the organisation estimates.
The guidance is a response, in part, to the Sevilla Commitment, the outcome statement from the Fourth International Conference on Financing for Development held in mid-2025, that called for blended finance structures to be made more effective, impact driven and scalable.
It builds on a series of blended finance principles first developed by the OECD Development Assistance Committee (DAC) in 2017, which emphasise elements such as additionality, transparency, collaboration and alignment with partner country priorities. It is the product of extensive consultations with DAC member states, development banks, development finance institutions (DFIs), private investors, civil society organisations (CSOs) and partner governments.
Lasse Møller, a senior economist at the OECD’s Development Cooperation Directorate and one of the report’s authors, told Impact Investor that updated guidance was needed, because, while some aspects of blended finance had been effective, it has not delivered consistently at scale.
“Blended finance has remained pretty much a cottage industry. It has been focused on relatively small transactions and bespoke deals, which has meant that we have not seen the kind of scale-up with standardisation of products and processes or progress on transparency that we had wanted,” he said.
The OECD says in the report that many blended finance transactions remain too complex, narrowly defined or small in scale to drive systemic change, while challenges with impact measurement, transparency and local ownership continue to limit the wider and more effective use of blended finance.
The revised guidance sets out to build on practical experience and good practice to provide “a more focused, action-oriented tool for policymakers, development finance providers and other actors in blended finance”.
Scalability
Those putting together large-scale blended finance structures need to avoid over-complicating them and, where possible, work from more standardised templates to make them easier to understand and more attractive to big institutional investors with due diligence concerns, according to the authors.
“We need products that are scalable. We need products that are more easily recognisable and products that can be more easily purchased by these investors. If we can deliver that, there is appetite – we have case studies showing that appetite, and case studies proving that we do not even need concessional funding to make development finance an asset class that can be sold to private investors,” Møller said.
The report, which is underpinned by a repository of case studies across thematic areas, provides examples of structures with potential to attract pension funds, insurance companies and other institutional investors. These include securitisation to create a diversified pool of assets into lower-risk securities, guarantees from DFIs, structured funds and Green, Social, Sustainability and Sustainability-linked (GSSS) bonds.
Private investors themselves also need to play an important part in making blended finance work better, according to the guidance. One way is to provide greater transparency on financial risk and project viability in emerging economies. Another is to use their position as operators in the developing world to suggest improvements in the enabling environment for investment, for example by alerting partner development institutions to regulatory barriers that the donor community may be able to address at a policy level.
Creating an enabling environment for investment has become an increasingly important complement to blended finance for some DFIs. The guidance says more should be done in this regard, through provision of technical assistance to build local institutional capacities in investee countries and the creation of policy, institutional, regulatory, legal and financial pillars that help address structural obstacles faced by both domestic and international investors.
“Support to the development of a pipeline of investable opportunities at local level should be integrated as a critical part of these efforts,” according to the authors.
Møller said the updated guidance reflects the entry of new stakeholders to the blended finance community over recent years, such as CSOs. While CSOs were often portrayed as watchdogs, potentially critical of the use of public funding to support private sector, some are now becoming partners in blended finance transactions.
“They play a very important role in linking up private investors and the donor community with the actual beneficiaries, because they are on the ground and in contact with local communities, and can really play an important role as a facilitating partner,” he said.
In September, the Netherlands Advisory Board on Impact Investing also published a report designed to encourage the wider use of blended finance and provide lessons for catalytic capital deployment, which reached some similar conclusions.
