How can we make scarce concessional capital go further?
Why the next generation of development finance may depend on smarter risk-sharing, targeted interventions and private sector participation.
At this year’s World Bank Group and IMF Annual Meetings, Standard Chartered convened discussions on how innovative development finance can be structured and scaled across Africa and Asia to mobilise capital, create fiscal flexibility and deliver measurable development outcomes. Drawing on practical experience from sovereign-led transactions and partnerships, the conversations explored ways to expand the toolkit available to governments, development finance institutions and private investors.
Ahead of COP31, those themes were explored in an article for Convergence by John Murton, Senior Sustainability Advisor and Head of Blended Finance Programmes at Standard Chartered, and colleagues. In this Q&A, John shares his perspective on how blended finance is evolving and why the next generation of development finance solutions may depend on smarter risk-sharing, targeted interventions and broader participation from private sector actors.
Why is blended finance such an important topic right now?
We’re entering a period where demand for sustainable investment, including for infrastructure and the energy transition, continues to grow, but public and concessional capital is increasingly constrained. That means the question is no longer simply how much catalytic capital is available, but how effectively it is deployed.
The challenge for the development finance community is to maximise the mobilisation of private capital from every dollar of concessional funding. Despite the long-term growth opportunities of these markets and sectors, participation for private sector financial institutions must be in line with their fiduciary obligations to investors and regulatory requirements. Blending can help.
Has the traditional blended finance model reached its limits?
Traditional approaches remain important, particularly where concessional capital is used to absorb risk within a project or fund structure. But if our objective is to increase mobilisation at scale, we should widen our thinking about how blended finance can be deployed. Rather than looking solely at reducing the cost of financing for a beneficiary, we should also look at where catalytic funding can remove the barriers that prevent private capital from participating in the first place.
What does that look like in practice?
Standard Chartered already works extensively with development banks to finance emerging markets transactions – Convergence ranks us the no. 1 blended finance bank globally. We see three areas which could enable additional private finance to participate at greater scale, particularly in more nascent markets or sectors.
The first is using grants and concessional finance to absorb the early-stage costs of project development. Many promising projects never reach financial close because nobody is willing to fund the feasibility work, legal structuring and transaction preparation needed to make them bankable and where technical assistance facilities are available, they can prove difficult to identify and access, particularly for those less familiar with the provider landscape. Meanwhile, existing facilities that do support project preparation, like the Global Infrastructure Facility, need to be scaled. Supporting project preparation can often unlock far greater volumes of private investment downstream.
The second is expanding the use of commercial providers of credit enhancement, including insurers, reinsurers, philanthropic partners, family offices, foundations and impact-oriented investors. Public institutions do not have to provide all the guarantees themselves. In many cases, concessional capital can be used more efficiently to support commercial risk-sharing mechanisms that bring additional market participants into the transaction.
The third is much more targeted risk allocation. Instead of de-risking an entire transaction, it can be more effective to identify the specific risk that is preventing investment, whether that is price risk, revenue risk or offtake risk, and address it directly through the most appropriate counterparty.
The most effective blended finance structures of the future may not be those that provide the largest subsidy. They are those that deploy limited concessional resources with greater precision, helping build investable markets at scale.
John MurtonSenior Sustainability Advisor and Head of Blended Finance Programmes
Are there examples where this approach is already being applied?
Yes. Recent transactions demonstrate how different forms of catalytic capital can work alongside commercial finance.
In The Bahamas debt-for-nature conversion, multilateral, philanthropic and private insurance partners combined within a layered guarantee structure that supported marine conservation outcomes while mobilising private capital.
In a separate carbon removals transaction, risks were carefully allocated across corporate offtakers, insurers and financiers, enabling financing without relying on a large traditional concessional funding component
What does this mean for policymakers, multilateral development banks and development financial institutions?
The key lesson is that the energy transition will require more than capital. It will require investable markets, innovative risk-sharing arrangements and stronger public-private collaboration.
The most effective blended finance structures of the future may not be those that provide the largest subsidy. They may be those that use limited concessional resources with the greatest precision, targeting specific barriers, attracting new forms of capital and creating the conditions for private investment to scale. That is ultimately how we build investable markets capable of supporting a pragmatic and inclusive transition.
This is where we see a significant opportunity: combining the private sector’s structuring expertise and scale of finance with targeted interventions from concessional capital from public and philanthropic sources and risk-sharing mechanisms needed to mobilise capital at scale across emerging markets and developing economies.
That is a conversation we are looking forward to continuing at the World Bank Group and IMF Annual Meetings, where we will be engaging with partners from across the development finance ecosystem on how innovative development finance can help create fiscal flexibility, crowd in private capital and realise the opportunities which climate transition and development represent in the markets we serve.
Overview of Blended Finance Programmes at Standard Chartered
The Blended Finance Programmes team at Standard Chartered develops and delivers innovative financing solutions that combine concessional, philanthropic, and commercial capital to mobilise private investment into emerging markets. Working with development finance institutions, governments, foundations and investors, the team helps de-risk transactions, close funding gaps and scale investment in climate, infrastructure, and sustainable development projects. By structuring partnerships and pioneering new financing mechanisms, the team seeks to unlock capital at scale and accelerate progress towards sustainable development objectives across the Bank’s footprint markets. Please get in touch with us to discover how we can support your objectives today.