DEVELOPMENT FINANCE IN ROUNDTABLE JUNE 2017

The Role of Blended Finance in Supporting Canada's New International Assistance Policy

Global Affairs Canada has announced a new feminist international assistance policy to reduce and build a more inclusive, peaceful, and prosperous world. By prioritizing gender equality and the empowerment of women and girls, Canada’s Feminist International Assistance Policy represents a significant evolution in approach.

This new approach should enable Canada to maximize the effectiveness of its international assistance, provide more integrated and responsive assistance, invest in innovation and research, deliver better reporting on results, develop more effective partnerships, and concentrate on those regions of the world where we can make the greatest difference in reducing poverty and inequality, particularly for women and girls.

Canada will expand its range of tools to enable joint program assistance with other donors, multi- stakeholder partnerships and innovative financing mechanisms, including blended finance. Blended finance is recognized as an important tool within the development toolbox to mobilize new capital sources to achieve the SDGs.

www.convergence.finance CANADA’S NEW INTERNATIONAL ASSISTANCE POLICY

1 GENDER EQUALITY 4 CLIMATE ACTION

• Addressing sexual & gender-based violence • Supporting women’s leadership & decision- • Supporting local organizations & movements making that advance women’s rights • Ensuring that the government’s climate- • Improving public-sector institutional capacity related planning, policy-making & financing address the challenges faced by women & • Helping to build a strong base of evidence to girls support gender equality actions • Supporting employment & business opportunities for women in the renewable energy sector

2 HUMAN DIGNITY 5 INCLUSIVE GOVERNANCE

• Strengthening sexual- & gender-based • Helping advance women’s leadership in violence prevention & response strategies governance & public sector management • Advocating for humanitarian principles & • Strengthening protections against international humanitarian law discrimination against women & girls • Supporting the full range of women & girls’ • Improving access to justice for women & girls; sexual & reproductive health • Supporting the protection of women’s human • Strengthening the capacity of local women’s rights defenders groups to assist in humanitarian emergencies • Supporting governments to ensure public services respond to the needs of women & girls

3 INCLUSIVE GROWTH 6 PEACE & SECURITY

• Increasing economic leadership & • Supporting the meaningful participation of empowerment of women at all levels women in peace negotiations & conflict- • Helping improve economic opportunities for prevention efforts & resilience of rural women • Advancing women’s rights in post-conflict • Promoting women’s economic rights & state building access to decent work • Helping prevent & respond to sexual violence • Promoting financial inclusion for women & in conflict zones & enforce its zero-tolerance equal access to business development policy for abuse perpetuated by peacekeepers services ALIGNMENT BETWEEN CANADA’S NEW POLICY & BLENDED FINANCE

WHAT IS BLENDED FINANCE? The United Nations estimates that the annual funding needed to achieve the SDGs is $3.9 trillion. To help close the annual SDG funding gap, the international development community has been looking to tap new sources of capital – particularly from private investors. Blended finance is recognized as an important tool within the development toolbox to mobilize new capital sources to achieve the SDGs. Although there are multiple ways to define blended finance, the authors see three signature markings: 1. Financial Returns: Whether a project, company, fund, or structured offering, the transaction is 1. intendedf to yield a return. 2. Development Impact: The transaction is in a developing country and contributes to the SDGs, but not all investors need to be socially motivated. 3. Leverage: The development parties are catalytic and additional; the private investment would not have been mobilised without the blended finance intervention.

WHERE CAN BLENDED FINANCE CONTRIBUTE?

Blended finance can crowd-in additional investment into key areas of Canada’s Human Dignity action area, especially health, nutrition, and education. Healthcare and education account for 20% of blended finance deals captured in Convergence’s historical deals database.

Blended finance can crowd-in additional investment into key areas of Canada’s Growth That Works For Everyone action area, especially climate-smart agriculture, SME financing, and financial inclusion. Agriculture and financial services—including microfinance and SME financing—account for 50% of blended finance deals captured in Convergence’s historical deals database.

Blended finance can crowd-in additional investment into key areas of Canada’s Environment and Climate Action action area. Energy and climate finance accounts for 20% of blended finance deals. HUMAN DIGNITY + BLENDED FINANCE

CANADA’S APPROACH BLENDED FINANCE OUTLOOK

Canada will work to ensure that the poorest and SECTOR FOCUS most vulnerable have access to good health care and nutrition, quality education and timely humanitarian 13% assistance. 7% Healthcare Health and Nutrition: Canada’s investments will help improve the quality of health and nutrition services Education for the poorest and most vulnerable. To support maternal, newborn and child health, Canada will Other follow through on its 2015 to 2020 commitment to invest $3.5 billion over five years.

Education: Canada’s investments will support programs and advocacy efforts that help women and GEOGRAPHIC FOCUS girls get the skills training and education that they 100% need to success. Global Europe and Central Asia ROLE OF BLENDED FINANCE East Asia and Pacific 50% Middle East and North Africa Blended finance can crowd-in additional investment South Asia into key areas of Canada’s human dignity action area, Latin America and Caribbean especially health, nutrition, and education. Sub-Saharan Africa 0% Healthcare and education account for 20% of blended finance deals captured in Convergence’s *Based on data from education and healthcare deals historical deals database. BLENDING ARCHETYPE Healthcare, in particular, is well-positioned to leverage blended finance. There are a number of 100% best practice blended finance healthcare deals that Concessional Capital have mobilized significant private capital for hospital and healthcare infrastructure, research and Guarantee/Risk Insurance development of essential medicines, and other 50% initiatives. Design or Preparation Funding

Education-focused blended finance deals increase Technical Assistance Facility investment in education finance offerings, including 0% student savings accounts and education loans. *Based on data from education and healthcare deals JPMORGAN CHASE & CO. / BILL & MELINDA GATES FOUNDATION (BMGF) STATUS: INVESTING INVESTMENT FUND (GHIF)

GHIF is a social impact investment fund designed to provide financing to accelerate the development of drugs, vaccines and diagnostics for diseases that disproportionately affect developing countries. The fund provides mezzanine debt to late-stage global health technologies. Investments will be repaid via a combination of milestones and royalties on the new products created.

TRANSACTION REGION YEAR TOTAL TYPE FOCUS ESTABLISHED TRANSACTION SIZE Fund Global 2012 USD 108M

BLENDED STRUCTURE INVESTORS AND PARTNERS CONTRIBUTION TO HUMAN DIGNITY

• To de-risk this first-of-its-kind • Anchor investors: Grand Challenges Canada, PORTFOLIO HIGHLIGHTS: global health product KfW, Children’s Investment Fund Foundation • BD: USD 10M project financing to promote development fund, BMGF and • Select additional investors: GSK, Merck, The early, affordable, point-of-care preeclampsia Sida provide downside Foundation, IFC, JPMorgan Chase & Co., (PE) and gestational diabetes mellitus (GDM) protection to GHIF investors, AXA, Storebrand, Greater Houston Community testing to reduce maternal and infant comprised of: Foundation mortality and morbidity o First-loss protection up to • Others: Advisory services from Innovations for • Atomo Diagnostics: USD 8M investment to $22 million Global Health; Charitability Oversight promote improved professional testing and o Further risk-sharing covering Committee membership and support from self-testing for HIV, Ebola, HCV, and malaria 50% of any downside beyond PATH; ESG diligence assistance from IFC the first-loss threshold

PALLADIUM STATUS: LATE-STAGE DESIGN RAJASTHAN MATERNAL AND CHILD HEALTH IMPACT BOND

Palladium has designed an innovative five-year result-based financing mechanism that will use a blend of private and philanthropic capital to fund a number of interventions aimed at improving reproductive, maternal and child health in the state of Rajasthan, the outcomes of which will be bought by a coalition of CSR, donor and Government agencies.

TRANSACTION REGION TOTAL YEAR ESTABLISHED TYPE FOCUS TRANSACTION SIZE Impact Bond South Asia 2016 USD 36M

BLENDED STRUCTURE INVESTORS AND PARTNERS TARGETED CONTRIBUTION TO HUMAN DIGNITY

• This is an impact bond • Reed Smith pro bono legal counsel • Based on modelled projections of private sector mechanism with an initial • MNC pharma company and international contributions, activities funded through this impact bond three-year first phase donor as co-outcome funders could save the lives of 450 mothers and 4,500 babies. where the outcomes are • Rajasthan Government as future • It could also create a sustainable network of service paid by donor and CSR outcome funder providers that will service an additional 2.2 million Family funds. Planning users. • Key implementation partners include • USAID funding specific HLFPPT and PSI • Key metrics include: Reduction in Maternal Mortality TA Rate (MMR); Reduction in Infant Mortality Rate (IMR); • Still seeking additional outcome funding Increase in Couple Years of Protection (CYPs); and and investors to bring to optimal Increase in Antenatal Care (ANC) visits resource envelope INCLUSIVE GROWTH + BLENDED FINANCE

CANADA’S APPROACH BLENDED FINANCE OUTLOOK

Canada recognizes the importance of the full participation of women in economic decision-making SECTOR FOCUS and is committed to helping improve opportunities 13% for women. Agriculture This includes assistance for rural women in the area of climate-smart agriculture and support for initiatives that deliver technical and vocational Financial Services training and encourage women’s entrepreneurship. 37% In addition, Canada will work to support greater Other financial inclusion, better access to good, well-paying work, and enhanced labour and property rights for women. Canada is also prepared to help local governments develop the policy reforms needed to GEOGRAPHIC FOCUS address issues such as unpaid work and care. 100% ROLE OF BLENDED FINANCE Global Europe and Central Asia Blended finance can crowd-in additional investment East Asia and Pacific into key areas of Canada’s Growth that works for 50% Middle East and North Africa everyone action area, especially climate-smart agriculture, SME financing, and financial inclusion. South Asia Agriculture and financial services—including Latin America and Caribbean microfinance and SME financing—account for 50% of 0% Sub-Saharan Africa blended finance deals captured in Convergence’s historical deals database. *Based on data from women and girls-focused interventions

The largest percentage of blended finance deals are focused on the financial services sector—including BLENDING ARCHETYPE microfinance and SME financing. Further, there is still great potential to scale private sector investment. 100% Financial inclusion and SME financing contribute to Concessional Capital improved livelihoods, job creation, economic growth, and women’s empowerment. Guarantee/Risk Insurance 50% Agriculture is a growing focus area for blended Design or Preparation Funding finance, which can cover both investment and working capital/trade finance, as from the Technical Assistance Facility perspective of farmers and other actors in the value 0% chain the two are complementary, and the logic of blending can be equally applied to both. *Based on data from women and girls-focused interventions GERMANY’S FEDERAL MINISTRY OF ECONOMIC CO-OPERATION STATUS: INVESTING AND DEVELOPMENT (BMZ), KFW DEVELOPMENT BANK AFRICA AGRICULTURE AND TRADE INVESTMENT FUND (AATIF)

The Africa Agriculture and Trade Investment Fund (AATIF) is an open-ended fund that invests across the entire agricultural value chain in Africa through direct investments (e.g., farming, processing, trading operations) and indirect investments in financial institutions and other intermediaries which on-lend to the agricultural sector (e.g., to smallholders, small and medium enterprises).

TRANSACTION REGION YEAR TOTAL TYPE FOCUS ESTABLISHED TRANSACTION SIZE Fund Sub-Saharan Africa 2011 USD 54M

BLENDED STRUCTURE INVESTORS AND PARTNERS CONTRIBUTION TO INCLUSIVE GROWTH

• AATIF leveraged a • Investors: Germany’s Federal Ministry of • As of March 2016, AATIF’s portfolio included concessional capital structure Economic Co-operation and Development four direct investments in agricultural companies to attract private investment (BMZ), KfW Development Bank, Deutsche in Africa, three indirect investments in local and • First-loss layer capitalized by Bank AG, and private investors regional banks and two indirect investments in Germany’s Federal Ministry (undisclosed) agribusiness intermediary companies who act as for Economic Cooperation • Common Fund for Commodities (CFC) aggregator for smallholder farmers. and Development (BMZ) provides technical assistance as required • Over 25,000 smallholder farmers directly • International Labor Organisation (ILO) & • Mezzanine layer capitalized benefitted in the 2015/2016 season. United Nations Environmental Programme by KfW and Deutsche Bank • 25 percent of smallholders served by one (UNEP) monitor compliance with social and investee, GADCO, are women. environmental guidelines

GLOBAL COMMUNITIES STATUS: INVESTING JORDAN LOAN GUARANTEE FACILITY (JLGF)

The JLGF provides partial loan guarantees and technical assistance to enable local Jordanian banks to provide financing to creditworthy but previously underserved SMEs. The JLGF aims to improve access to financial services to SMEs in Jordan, thereby promoting long-term sustainable economic development. The fund will also ensure that 44% of the loan guarantees are financing women entrepreneurs.

TRANSACTION REGION YEAR TARGETTOTAL TYPE FOCUSFOCUS ESTABLISHED TRANSACTION SIZE Facility Middle East and North Africa 2012 USD 250m

BLENDED STRUCTURE INVESTORS AND PARTNERS CONTRIBUTION TO INCLUSIVE GROWTH

• USAID provided USD 9.7M to fund • USAID, in partnership with OPIC, • Over 30 percent of loan guarantees have capacity building activities, including established the Jordan Loan benefitted women-owned business. workshops for bank officers and women Guarantee Facility (JLGF) to improve • JLGF provided financial management training entrepreneurs and technical assistance to access to finance for SMEs in Jordan. to build the capacity of over 150 women banks. • The Central Bank of Jordan’s Institute through special workshops for women • OPIC provided USD 250M for guarantees of Banking Studies (IBS) will be entrepreneurs. to Jordanian financial institutions. developing a SME Credit Diploma • Average loan size168,000 JOD accounting for • JLGF provides partial loan guarantees and Program, with the support of USAID, 74% of the portfolio. The rest are loans technical assistance to mobilize bank to provide further training for the below 75,000 JOD, which is 41% of the financing to SMEs. Jordanian financial sector. portfolio CLIMATE ACTION + BLENDED FINANCE

CANADA’S APPROACH BLENDED FINANCE OUTLOOK

Communities around the world, particularly the SECTOR FOCUS poorest and most vulnerable, are experiencing the destabilizing effects of climate change in dramatic 21% and costly ways. With climate change comes a wide range of challenges, including rising sea levels, floods, Energy and heat waves, droughts, desertification, water Climate Finance shortages, and the spread of tropical and vector- borne diseases. Other

Canada is committed to combatting climate change and its impacts. That is why Canada is providing $2.65 billion in climate finance to help the most vulnerable countries adapt to and mitigate climate change and make the transition to low-carbon, GEOGRAPHIC FOCUS climate-resilient economies. 100% Global ROLE OF BLENDED FINANCE Europe and Central Asia East Asia and Pacific Blended finance can crowd-in additional investment 50% Middle East and North Africa into key areas of Canada’s Environment and climate South Asia action action area. Energy and climate finance Latin America and Caribbean accounts for 21% of blended finance deals. Sub-Saharan Africa 0%

Clean energy and climate finance blended finance *Based on data from women and girls-focused interventions deals generally fund renewable energy and low- carbon projects. OECD notes, “Climate action, in BLENDING ARCHETYPE particular, is emerging as an important issue to be addressed through blended finance, with 100% approximately one in five facilities being directed to Concessional Capital promoting clean energy.” Design or preparation grant funding and guarantee and risk-sharing Guarantee/Risk Insurance mechanisms hold high potential for crowding in 50% private sector investment to the climate space. Design or Preparation Funding Blended finance can help rebalance the risk-reward profile of pioneering projects. Technical Assistance Facility 0%

*Based on data from women and girls-focused interventions DENMARK STATUS: FULLY INVESTED DANISH CLIMATE INVESTMENT FUND (KIF)

KIF provides risk capital, including a preferred return for the private investors, for climate-related projects to mobilize further financing from both public and private investors. The fund targets climate projects in developing countries, particularly growth markets in Asia, Africa, Latin America and parts of Europe.

TRANSACTION REGION YEAR TOTAL TYPE FOCUS ESTABLISHED TRANSACTION SIZE Fund Global 2014 USD 259m

BLENDED STRUCTURE INVESTORS AND PARTNERS CONTRIBUTION TO CLIMATE ACTION

• KIF employs a unique capital • Each of the six investors, two public • KIF committed 1.3 DKK to projects in middle- structure that leverages the risk sector and four institutional investors, income countries (e.g. India, Kenya, and appetite of private investors for have an equity stake Malaysia) investment in climate projects in • Public investors: Danish Government PORTFOLIO HIGHLIGHTS: emerging markets. and IFU • Lake Turkana Wind Power project: The 300MW wind farm will be the largest wind park • The institutional investors receive a • Private investors: PensionDanmark, in sub-Saharan Africa, producing 20 percent of preferred return once all investors PKA, PBU, Vækstkapital have received their invested capital Kenya’s energy • IFU is the fund manager • Male Water and Sewerage Company Solar • KIF provides TA to projects that Rooftop Plant: PV solar cells will reduce energy require a push to bankability cost and reduce the CO2 emission considerably

CROSSBOUNDARY STATUS: INVESTING CROSSBOUNDARY ENERGY

CrossBoundary Energy is dedicated to financing on-site solar generation for commercial and industrial businesses in sub-Saharan Africa, which is a critical development need that is systemically under-financed. CrossBoundary Energy finances the construction, operations, and maintenance of solar projects, and is repaid through the sale of electricity to businesses or through lease arrangements.

TRANSACTION REGION YEAR TOTAL TYPE FOCUS ESTABLISHED TRANSACTION SIZE Project/Business Sub-Saharan Africa 2015 USD 28.8m

BLENDED STRUCTURE INVESTORS AND PARTNERS CONTRIBUTION TO CLIMATE ACTION

• CrossBoundary Energy uses their fund, • First loss Equity: USAID PORTFOLIO HIGHLIGHTS: Cross Boundary Energy I (CBE), to • Grants: Shell Foundation, • Solar Carport Solution: 858 kWp solar carport finance transactions. ACEF (African Clean Energy solution installed at Garden City, the first mixed-use • CBE has an innovative two-tier equity Finance Initiative) development in East Asia to gain LEED certification capital structure. USAID provides junior • Private investors: Blue Haven • Rooftop Solar Solution: Solar installation at the Kigali tier, first loss, funding to CBE, which Initiative, Treehouse Genocide Memorial provides cheaper, cleaner catalyzes private investment into the investments, Ceniarth power larger senior tier. • CBE invests its equity through special • Off-grid Solar Battery Solution: 74.4 kWp solar- purpose vehicles that can also raise debt battery installation provides clean and reliable power to increase total capital available. for Loisaba Conservancy ANNEX: CANADA’S AID EFFICIENCY APPROACH

1 BETTER LEVERAGED INVESTMENT 5 INNOVATION, RESEARCH, RESULTS Within this core action area, Canada will work to: Within this core action area, Canada will work to: • Increase and diversify the range of mechanisms • Build innovation into its assistance programs by for working with the private sector adopting new business models, policy practices • Become an investing partner in the achievement and technologies of results by leveraging repayable contributions • Encourage greater experimentation and scaling- • Attract funds from other partners and support up of new solutions to development challenges investment through loans, guarantees, and equity • Seek out new ways of working and new partnerships that can increase effectiveness • Develop stronger and more meaningful 2 MORE INTEGRATED ASSISTANCE performance indicators Within this core action area, Canada will work to: • Better integration of development and other 6 MORE EFFECTIVE PARTNERSHIPS objectives, such as trade • Help to encourage inclusive growth and create Within this core action area, Canada will work to: jobs and improve incomes • Offer partner governments experience and • Maintain the highest standards of corporate expertise and timely technical assistance social responsibility and transparency • Continue to engage Canadian civil society • Progressive trade agenda that considers gender, organizations, providing $100M over 5 years environmental protections, and labour provisions • Draw on its membership in key multilateral groups – UN, G7, G20, Commonwealth, etc. • Support developing countries’ efforts to create 3 RESPONSIVE AND ACCOUNTABLE stable regulatory systems Within this core action area, Canada will work to: • Streamline and accelerate funding and reporting 7 RESPONDING TO NEEDS procedures • Expand its range of tools to enable joint program Within this core action area, Canada will work to: assistance, including “blended finance” • Discontinue its “countries-of-focus” approach • Provide greater transparency on International • Adapt approaches to better respond to local Assistance Envelope (IAE) expenditures needs and opportunities • Target our assistance where we can make a significant difference, including fragile contexts 4 FEMINIST DONOR • Ensure that no less than 50 percent of assistance Within this core action area, Canada will work to: is directed to Sub-Saharan Africa by 2022 • Increase its support to initiatives that advance gender quality and women’s empowerment • 95 percent of bilateral development assistance will target or integrate gender equality by 2022 • Ensure active and meaningful participation and decision-making by women and girls