Innovative Financial Instruments (blending)

Innovative Financial Instruments (blending)

Investment needs in EU partner countries are substantial. Government and donor funds are far from sufficient to cover these needs. Countries need to attract additional public and private finance to drive economic growth as a basis for poverty reduction.

The Agenda for Change emphasises the support of inclusive growth and job creation as a key priority of EU external cooperation. In this context, blending is recognised as an important vehicle for leveraging additional resources and increasing the impact of EU aid.

WHAT IS BLENDING?

/europeaid/file/blending-worldmap-20152285x1405300dpiv2jpg_enblending-worldmap-2015_2285x1405_300dpi_v2.jpg

 

Blending is an instrument for achieving EU external policy objectives, complementary to other aid modalities and pursuing the relevant regional, national and overarching policy priorities. The principle of the mechanism is to combine EU grants with loans or equity from public and private financiers.

The EU grant element can be used in a strategic way to attract additional financing for important investments in EU partner countries by reducing exposure to risk. On a case-by-case basis, the EU grant contribution can take different forms to support investment projects:

  • Investment grant & interest rate subsidy - reducing the initial investment and overall project cost for the partner country
  • Technical assistance - ensuring the quality, efficiency and sustainability of the project
  • Risk capital (i.e. equity & quasi-equity) - attracting additional financing
  • Guarantees - unlocking financing for development by reducing risk

THE BENEFITS OF BLENDING

Using blending as a tool for EU external cooperation offers various benefits to different stakeholders:

  • leverage to enhance the impact of EU development assistance and improved aid effectiveness through greater donor, beneficiary and lender coordination
  • support to policy reforms
  • a sustainable and affordable way to tap into significant additional financing for national development priorities
  • an increased access to public services, infrastructure and credit to boost socio-economic development
  • mitigation of the risks associated with investing in new markets and sectors

EU BLENDING FACILITIES

The EU implements blending operations through regionally or thematically focused financial instruments that support projects contributing to the fulfilment of EU and partner country strategic development goals.

The EU blending facilities are organised in Blending Frameworks corresponding to the financing instruments providing funding in support of the Union’s external policies:

Under responsibility of Directorate-General for International Cooperation and Development (DG DEVCO)

Development Cooperation Instrument (DCI) Blending Framework

European Development Fund (EDF) Blending Framework

In parallel, several thematic initiatives are supported through blending, with special focus on inclusive and sustainable private sector development:

  • Electrification Financing Initiative (ElectriFI) aims at accelerating access to electricity and modern energy services through intervention at the development stage of a project.  
  • Agriculture Financing Initiative (AgriFI)'s objective is to unlock, accelerate and leverage investments with a value chain approach focusing on smallholder's inclusiveness and/or MSME agri-business.
  • Climate Finance Initiative supports identification and piloting of innovative climate finance instruments to mobilise private development finance

Under responsibility of Directorate-General for Neighbourhood and Enlargement Negotiations (DG NEAR)

European Neighbourhood Instrument (ENI) Blending Framework

Instrument for Pre-Accession Assistance (IPA) Blending Framework

* EU-AITF covered blending operations 2007-2013 Multiannual Financial Framework and is replaced by AfIF in 2014–2020 Multiannual Financial Framework.