Blended finance is defined as a development finance approach that employs the “strategic use of development finance and philanthropic funds to mobilize private capital flows to emerging and frontier markets”. Therefore, developing countries can leverage blended finance to use public or philanthropic capital to spur private sector investments in projects which implement the SDGs. Due to the expensive and ambitious nature of the SDG’s, the UN estimates an annual investment gap of $3.1 trillion in the developing world, covering areas of climate change, infrastructure, health, education, and many more. With private sector engagement urgently required to bridge the investment gap and requiring cities to innovate and explore new elements such as blended finance. 

Different types of blended finance exist, covering a broad mix of financial strategies and instruments. For example, simple grants or government debt through to more exotic mixes of private debt funding linked with financial guarantees and cross-border bond offerings. Utilizing, different blended finance strategies at various financial stages can help mitigate major risks faced by investors and strengthen the partnership. Although due to the complex nature of the concept, blended finance is likely to “scare” agencies away. Therefore, change is needed across the blended finance ecosystem. Leading stakeholders need to believe that blended finance will bring in major impacts and returns to strengthen the leadership in the investment system. With needed actions, blended finance markets will have the chance to scale up and truly bring sustainable impacts for development targets.