Maximising bang for the buck: Risks, returns, and what it really means to use ODA to leverage private funds
By Paddy Carter, Research Fellow, Overseas Development Institute
The idea of using official development assistance (ODA) to leverage private finance is a staple of the financing for development circuit and features heavily in most donors’ strategies. Experienced financiers both from official sector development finance institutions (DFIs) and private investors are, however, still feeling their way into this field’s unfamiliar territory. DFIs for the most part emphasise the importance of providing finance on non-concessional terms to avoid distorting markets and crowding-out other sources of finance. Though some standard elements of their business could fall under the rubric of blended finance, such as grant-funded technical assistance, for the most part DFIs and development banks have treated explicit subsidies to private enterprises as dangerous medicine to be prescribed rarely. Now the pressure is mounting to find more creative ways to leverage private finance using ODA. But how?
To meet the SDGs with their emphasis on leaving no one behind, we need solutions that tackle persistent exclusions and inequalities in the local economies and communities where the poor live and work. Targeting the last mile means adapting solutions to the households, localities and small enterprises that are underserved, where development needs are greatest and where resources are scarcest.
