Introduction
Over the past decade, blended finance has been promoted as a mechanism to mobilise private capital into Emerging Markets and Developing Economies (EMDEs). Despite innovation and policy support, it has not scaled meaningfully. EMDEs account for a large share of global population and growth, yet receive only a small proportion of global financial assets and institutional investment. The report positions blended finance as a potential bridge between development objectives and commercial capital, but argues that structural reform is required for scale.

Objectives, Methodology And Approach
The report aims to diagnose system-level failures limiting blended finance and identify conditions required for greater institutional participation. It combines a literature review, 65 semi-structured interviews across public, private and philanthropic actors, and an attempted portfolio-level simulation using historical transaction data. The quantitative exercise highlighted a critical constraint: insufficient, inconsistent and inaccessible deal-level data, limiting robust risk–return analysis.

Section I – Introduction To Blended Finance And Private Sector Mobilisation
Blended finance is defined as the strategic use of public and philanthropic capital to attract additional private investment aligned with the Sustainable Development Goals. EMDEs face persistent underinvestment due to high perceived risk, regulatory constraints, limited liquidity and weak pipelines. As of 2022, only 5% of global financial assets were held in EMDEs (excluding China), and global investors allocated around 10% of portfolios to these markets. ESG-focused funds allocated only 6% to EMDEs. Blended finance can mitigate these barriers through layered capital structures, but current practices remain fragmented and bespoke.

Section II – Opportunity 1: Enhancing Transparency And Standardisation
A central barrier to scale is the lack of transparency in pricing, capital structures, risk-sharing and returns. Confidentiality and inconsistent reporting reduce comparability, raise transaction costs and undermine investor confidence. Excessive structuring complexity introduces a “complexity premium” that increases the cost of capital. The report calls for mandatory transaction-level disclosure, a central open-access database, and standardised templates for reporting and term sheets to enable benchmarking, aggregation and more efficient due diligence.

Section III – Opportunity 2: Advancing Regulatory Innovation And Accurate Risk Pricing
Prudential regulations, conservative credit rating methodologies and outdated risk perceptions misprice EMDE risk and constrain capital flows. Frameworks such as Basel III and Solvency II do not adequately reflect risk mitigation tools such as guarantees and first-loss capital. The report recommends regulatory recalibration, modernised credit rating approaches, and broader use of de-risking instruments. Investors are encouraged to adopt bottom-up risk assessments and tailor structures to local contexts, including greater engagement with local financial institutions.

Section IV – Opportunity 3: Strengthening Liquidity And Expanding Exit Options
Limited liquidity and weak exit pathways deter institutional investors with defined return and duration requirements. Blended finance transactions often lack secondary market options, restricting capital recycling. The report highlights the need to shift from bespoke deals towards scalable, replicable platforms, encourage origination-to-distribute models, and develop secondary markets to align blended finance with institutional investment practices.

Section V – Opportunity 4: Building A Robust Project Pipeline
Insufficient early-stage project preparation constrains deal flow. Weak pipelines increase risk and transaction costs, particularly in high-risk markets. The report stresses the role of concessional capital and technical assistance in project preparation, country platforms and capacity building. EMDE governments are encouraged to align blended finance with national development strategies, improve permitting processes and address currency risk.

Section VI – Opportunity 5: Fostering Additionality Through Market Standards And Strategic Interventions
Additionality is often weakly defined, with concessional capital sometimes crowding out private investment. The report calls for clearer additionality metrics, stronger coordination among catalytic actors, and stricter discipline to ensure blended finance targets genuine market failures. Concessional support should be strategic, targeted and temporary to support market creation rather than dependency.

Section VII – Conclusion
The report concludes that barriers to scaling blended finance are structural but solvable. Coordinated action across governments, development finance institutions, philanthropies, credit rating agencies and private investors is required. Embedding transparency, standardisation and liquidity into the ecosystem is essential for mobilising private capital at scale and integrating blended finance into mainstream capital markets.