Blended Finance: A Capital-catalyzing Tool For Financing Sdgs In Latin America And The Caribbean (lac)

The OECD estimates that even though the UN Sustainable Development Goals (SDGs) financing gap increased substantially after 2020, a 20% surge in funding happened due to multilateral efforts to raise capital from private sources globally (OECD 2023). It is estimated that USD19.7 billion is currently being allocated to Blended Finance (BF) initiatives in Latin America and the Caribbean (LAC), with 37% coming from Development Finance Institutions and Multilateral Development Banks (Apampa 2022) and 36% from commercial investors. The development of the domestic private and financial sectors is of equal importance to target capacity building and ensuring finance flows benefit targeted countries towards their Paris Alignment. In this sense, this policy brief will investigate how BF can be employed to overcome financing challenges, including the development of local capacities in LAC, delving deeper into the type of BF initiatives already operating in the region. Main challenges have been identified and classified into four dimensions of BF development constraints: (i) regulatory, (ii) operational (iii) technical, and (iv) market-based. Through reviews of the literature and the assessment of selected case studies, the brief will propose recommendations and practical solutions to tackle the above-cited challenges, which can be implemented by the G20 and its task forces.