Introduction

A decade after the 2015 UN Financing for Development Conference in Addis Ababa (FfD3), the financing gap between the resources mobilized by emerging markets and developing economies (EMDEs) and those needed to meet development goals has continued to widen. Estimated at an annual $4 trillion in 2022–2023, total financing needs are projected to reach $6.4 trillion by 2030, the target year for the UN Sustainable Development Goals (SDGs) (OECD 2025). Achieving these goals – tackling challenges such as poverty, inequality, climate change, and peace – requires not only increased financial flows but also a more strategic and diversified approach to private capital mobilization.

Private-sector investment has been increasingly recognized as critical to addressing this gap, with mechanisms such as blended finance, impact investing, and catalytic capital – including philanthropic funding – playing a central role. However, the volume of private capital mobilized remains insufficient, making this issue a priority for forums like the 2025 Financing for Development Conference in Seville (FfD4).

The concept of mobilizing private finance for development first gained global prominence at FfD3, evolving from a commitment into a more structured strategy. Blended finance and the recognition of a broader spectrum of catalytic capital emerged as a key tool to bridge the financing gap, recognizing that different sectors have varying levels of attractiveness to private investors. Some, such as renewable energy, have drawn substantial investment, while others, such as health, education, and water, continue to face barriers due to perceived risks and lower financial returns.

Historically, high capital costs in EMDEs have hindered development investments, with infrastructure and social sectors largely dependent on public funding. However, the energy sector – particularly renewable energy – has attracted private investment, reducing the need for risk mitigation by public actors such as multilateral development banks (MDBs), public-sector entities, and philanthropic organizations. This shift has raised concerns about crowding out private-sector participation where it could be most effective, while MDBs remain risk averse due to their financial stability considerations. Despite their mandate to finance high-risk ventures, MDBs often prioritize maintaining their AAA credit ratings, which can sometimes take precedence over broader development ambitions.

Conversely, while infrastructure and energy have become viable for private investment, new levels of innovation mean that traditionally public-funded sectors such as water, education, and health are now also seeing some level of private-sector engagement. This trend challenges conventional distinctions between public and private goods, raising both opportunities (for increased funding) and concerns regarding equity, access, and affordability. Private health care providers, for instance, are expanding in underserved areas, and companies are supplying drinking water in the absence of public services. These developments highlight the need for carefully structured financial mechanisms that align private-sector participation with key development objectives and a commitment to inclusion.

As the development finance landscape evolves, blended finance and catalytic capital – including philanthropy – play a crucial role in scaling investment and mitigating risks that deter private participation. Philanthropy, as part of a broader continuum of capital, can de-risk investments and crowd in private capital, particularly in sectors where financial returns alone do not justify investment. The effectiveness of MDBs and development finance institutions (DFIs) in mobilizing capital must also be enhanced to ensure these institutions fulfill their mandate of financing high-risk, high-impact ventures while retaining their credit ratings.

This chapter explores how blended finance, catalytic capital, and philanthropic contributions can be leveraged to close the financing gap and drive sustainable development. It will examine strategies for scaling these mechanisms and transforming MDBs and DFIs into more effective mobilizers of private capital, ensuring a more inclusive and impactful development finance system while also collaborating more widely across the broader ecosystem.

The Transformative Potential of Public–Private–Philanthropy Partnerships

The G20 Independent High-Level Expert Group (IHLEG) emphasizes the transformative potential of investment partnerships among private, public, and philanthropic stakeholders from both the Global North and Global South (Bhattacharya et al. Reference Bhattacharya, Songwe, Soubeyran and Stern2024). Their analysis highlights the unprecedented investment imperative and opportunity presented by the net-zero transition as a pathway to equitable and sustainable growth.

For example, Africa holds 60 percent of global solar energy potential yet received only 2 percent of global clean energy investments in 2023 (IEA 2024). Given that solar panels are the most cost-effective method of electricity generation, Sub-Saharan Africa presents immense business potential – provided adequate funding is available. Instead of framing this solely as an investment gap, the IHLEG advocates for viewing it as an opportunity to lift millions out of poverty and enhance livelihoods. This perspective shifts the narrative from a challenge to an asset, fostering innovative solutions that benefit both people and the planet.

Within this context, philanthropic organizations have a unique opportunity to leverage their assets more strategically to catalyze development impact. According to the Organisation for Economic Co-operation and Development (OECD), while private philanthropy contributed an estimated $9.6 billion to global development in 2020, up by 65 percent from $5.8 billion in 2015, many foundations are not fully utilizing their potential to drive systemic change (OECD 2023). By adopting innovative financial instruments such as loans, guarantees, and equity investments – beyond traditional grants – foundations can address gaps in development funding, particularly in such sectors as health, education, and climate resilience.

Perhaps most importantly, by adopting more sophisticated instruments and structures, philanthropic entities will inevitably enhance their capacity to support broader partnerships, leveraging their risk capital to underwrite ambitious initiatives. This presents an untapped opportunity, historically exacerbated by the lack of collaboration between the philanthropic sector and the broader development community. As multi-sector partnerships gain momentum and philanthropy’s potential to apply a systems lens – taking a holistic rather than fragmented approach – is increasingly recognized, this gap is beginning to close.

Indeed, these partnerships, often anchored by social sector actors, represent an emerging model designed to address the complex, multi-stakeholder, systemic shifts required to deliver on the SDGs and notably for climate and nature transitions.Footnote ¹ Moreover, only a minority of foundations currently align their endowments with responsible investment strategies, despite clear evidence that mission-related investments can generate both competitive financial returns and meaningful social impact. Enhancing transparency, collaboration, and capacity-building within the philanthropic sector is essential to amplifying its role as a catalyst for sustainable development finance.

The Financial Gap for the SDGs: Building an Enabling Environment

The pressing need to fill funding gaps has highlighted the limitations of traditional development finance. Even at its highest level ever in 2023, ODA reached $223.3 billionFootnote ² – yet remained insufficient to meet the SDGs. While governments and international institutions remain key players, the private sector has emerged as a crucial partner in closing the gap. With global assets worth $461 trillion in 2022 (OECD 2025), its capacity for innovation, and focus on environmental, social, and governance (ESG) metrics render it a natural ally.

However, significant barriers continue to hinder the effective mobilization of private capital, chief among them the inefficacy of public finance instruments in EMDEs and the constraints imposed by existing regulatory frameworks. Domestic tax policies, investment environments, and regulations have failed to attract sufficient private finance, which has fallen well short of the expectations set in 2015. In 2023, only $70 billion in private capitalFootnote ³ had been mobilized for development – far from the “billions to trillions” ambition outlined at the FfD3 in Addis Ababa.Footnote ⁴

Enabling regulatory frameworks remains essential to unlocking private investment. As consistently emphasized by the OECD, this requires the development of robust domestic capital markets, clear policies, and institutional frameworks that incentivize private-sector participation (Dembele Reference Dembele, Randall, Vilalta and Bangun2022).

Meanwhile, blended finance has gained traction as a tool to de-risk investments and attract private-sector participation. Instruments such as equity investments, debt instruments, guarantees, impact bonds, structured funds, and syndicated loans have evolved significantly since 2015. However, challenges persist, including high local currency interest rates and public-sector reliance on concessional funding.

The OECD (2022) emphasizes the opportunity of blending public and private finance to better meet the investment challenges of developing markets while also recognizing the capital surplus the Global North and the demographic growth and investment opportunities in the Global South. Institutional investors – from pension funds to sovereign wealth funds, insurance companies, private equity firms, hedge funds, and family offices – could all play a much greater role in addressing key global issues such as climate change, sustainable development, and financial inclusion with a more enabling environment.

The need for reform has not gone unnoticed. In 2023, G7 countries engaged extensively in discussions to this end. A significant bipartisan achievement was the 2019 establishment of the US International Development Finance Corporation, partly aimed at countering China’s Belt and Road Initiative. Moreover, the G20’s call for “better, bigger, and more effective” MDBsFootnote ⁵ underscored the need for greater cohesion, optimized balance sheets, enabling cross and joint investments and risk mitigation through treasury operations like swaps.

There is also a growing emphasis on improving coordination among bilateral DFIs, such as FMO, NORFUND, and DEG, to strengthen the sustainable development financing ecosystem. However, much deeper structural progress is still needed – through initiatives such as the Investment Mobilisation Collaboration Alliance (IMCA), a partnership between Denmark, Finland, Iceland, Norway and Sweden promoting project pipeline coordination and collaborative tendering of asset managers using a competitive market approach.

Facilitating Capital Flows: The role of global financial regulations in facilitating capital flows to EMDEs is also crucial. Following the 2007–2009 financial crisis, frameworks such as Basel III and Solvency II prioritized financial stability but inadvertently imposed prohibitive costs on investments in regions urgently needing climate and development funding. There have been persistent calls to reassess these regulations to better balance stability with development objectives, as stringent capital requirements continue to stifle investment in EMDEs.Footnote ⁶

While some advocate for integrating global development and climate goals into financial regulations, others warn of the complexity and political resistance such reforms may face. The FFD4 outcome document, the Sevilla Commitment, acknowledges the issue by inviting international bodies and standard-setting organizations to report on risk-weighting methodologies, especially regarding their impact on MSMEs, infrastructure, and trade finance. However, significant political and technical hurdles remain (OECD 2025).

Mobilizing private finance has thus become a political priority in addressing the SDG financing gap, but it is not a panacea. Concessional finance or aid, historically dominated by OECD member countries, remains essential, accounting for 94 percent of total official flows provided by members of the Development Assistance Committee (DAC) in 2023.Footnote ⁷ Moreover, nontraditional providers – from China to the BRICS nations and Middle East actors – are playing a growing role. Institutions such as the Islamic Development Bank, as well as Saudi Arabian and United Arab Emirates–based entities, are increasingly engaged in this area and building greater transparency by reporting their concessional finance flows to the OECD.

Challenges remain, however, in facilitating collaboration by ensuring comprehensive data collection that can highlight opportunities for co-investments and where the gaps lie. The OECD’s Credit Reporting System aims to address this issue by providing disaggregating data from 130 institutions – including 30 OECD member countries, 20 non-DAC providers, 40 foundations, 40 international organizations, and UN agencies – offering a higher standard of data accuracy and transparency for tracking concessional funding.

Strengthening Domestic Resource Mobilization and Development Finance

Domestic resource mobilization (DRM) is increasingly recognized as the most sustainable funding source for EMDEs. While high-income countries generate an average of 40 percent of their gross national income (GNI) through domestic taxation, low-income countries (LICs) raised only 11 percent in 2022 – far below the 15 percent threshold needed to fund basic government functions and public services (Our World in Data 2023).

Despite its potential, DRM has seen limited progress over the past decade, largely due to inadequate international support for capacity building in tax policy and revenue generation. Philanthropic organizations could play a critical role in closing this gap. Unlike volatile external funding, DRM provides stable, local currency–denominated resources, enabling EMDEs to finance their development priorities sustainably. Strengthened technical assistance and targeted capacity-building initiatives are essential to unlocking DRM’s full potential.

Aligning Investment with the SDGs. Governments can incentivize private sector investment in the SDGs by reducing the cost of capital and implementing ESG taxonomies. While ESG frameworks have advanced globally, pushback – particularly in the United States – has led to reduced commitments in Anglo-Saxon markets, where ESG is increasingly labeled as “woke.” In contrast, the European Union has introduced mechanisms encouraging investment in EMDEs, and organizations such as the OECD and G20 are working on frameworks to align finance with the SDGs, particularly for impact investors.

Private-sector coalitions such as the Global Impact Investing Network, the World Business Council for Sustainable Development, and the Global Alliance for Sustainable Development are also advancing ESG taxonomies, monitoring standards, and reporting frameworks, aiming to increase transparency and drive greater private sector participation.

Portfolio Approaches. Portfolio approaches, pioneered by IFC, Amundi, and Allianz, enable large asset managers to co-invest in MDB and DFI assets, creating substantial ticket sizes with investments in the hundreds of millions. Multi-sector and sector-specific investments are drawing institutional investors into transformative projects, facilitated by initiatives such as the the Hamburg Sustainability Platform (HSP), rebranded in June 2025 as SCALED – a public–private alliance working to standardize financial products and align public strategies. This approach enables large-scale institutional investments from pension funds and insurance companies.Footnote ⁸

Ensuring Equitable Funding Allocation. A greater focus is needed on LICs and least-developed countries (LDCs), which receive disproportionately low private finance. Capital primarily flows to middle-income countries and high-return sectors like energy, bypassing social sectors and LDCs, where funding needs are greatest. DFIs and MDBs must strike a balance between concessional finance (loans and grants) for LICs and LDCs and scaling mobilized capital for broader investments. The G20 Roadmap for MDB Reform, endorsed by G20 Leaders, provides a framework for increasing MDB financing capacity, fostering greater collaboration across development banks, and strengthening engagement with governments, private sector investors, and other stakeholders.Footnote ⁹

Capitalization and Innovation in Development Finance. Sustained innovation in development finance requires increased capitalization of bilateral DFIs, MDBs, and national development banks. However, the current landscape remains static, necessitating a shift toward greater risk-taking and financial innovation. Momentum is building – particularly among shareholders – for higher capital injections into MDBs and DFIs (Bridgetown Initiative 2024). Enhanced capitalization would enable these institutions to take on higher risks, adopt innovative financing mechanisms, and support transformative projects.

Despite resistance from some countries, the World Bank has recently approved incremental capital increases as part of its ongoing reform process. Hybrid capital – a mechanism blending capital and loan characteristics – has emerged as a potential solution. These instruments are currently under discussion within DAC frameworks, with ongoing debates about whether they qualify as development aid based on their structure and intended use (Humphrey, McHugh, and White Reference Humphrey, McHugh and White2023).

The Role of Blended Finance in Mobilizing Private Capital

Blended finance, combining public, philanthropic, and private-sector resources, has emerged as a critical tool for addressing development challenges, particularly in infrastructure, climate adaptation, and other long-term investments in EMDEs. By using concessional funds from development actors to mitigate risks, blended finance encourages private-sector participation in areas deemed too risky or unattractive for conventional investment. The concept hinges on de-risking private investments to unlock capital flows into high-priority sectors such as renewable energy, social infrastructure, and climate resilience. Despite its growing prominence and political backing – supported by initiatives like the Bridgetown Initiative and the 4P Initiative, launched at the Summit on a New Global Financing PactFootnote ¹⁰ – the overall impact of blended finance remains modest.

A major obstacle to scaling blended finance lies in political and operational dynamics. Stakeholders often prioritize launching new initiatives with high political visibility over scaling existing successful models. This fragmentation disperses resources and limits the broader impact of blended finance. To counter this, such initiatives as the HSP and Convergence Blended Finance (CBF) aim to offer solutions (Convergence Blended Finance 2024). The HSP envisions a mega-fund capable of scaling proven projects, channelling resources toward high-impact initiatives. Similarly, CBF has identified and analyzed twelve successful blended finance models, aiming to focus efforts on the most impactful approaches. These initiatives emphasize standardizing processes, including the negotiation of legal frameworks and public-sector programming, to enhance efficiency and facilitate private-sector understanding of risk–return profiles. Such targeted efforts can help resolve structural inefficiencies, streamline investments, and bridge the persistent financing gap.

One of the most critical limitations of blended finance is the lack of publicly available, granular data on its successes and failures. Much of this data is proprietary to DFIs and MDBs, restricted by nondisclosure agreements with private-sector partners. The GEMS databank, housed at the European Investment Bank, exemplifies this challenge. While GEMS compiles risk–return data for emerging markets, it shares disaggregated information only among MDBs and DFIs, leaving private investors without the tools to accurately assess risks and opportunities. While more granular data has recently been published,Footnote ¹¹ the relative opacity is widely seen as hindering private-sector engagement and broader understanding of risk–return profiles in developing countries (Galizia and Lund Reference Galizia and Lund2024). In contrast, the OECD’s open-access datasets, which provide detailed project-level funding information across sectors and countries, serve as a role model.Footnote ¹² Studies such as Publish What You FundFootnote ¹³ further stress the urgency for MDBs and DFIs to adopt greater transparency to build investor confidence and reduce reliance on public funds for de-risking (James and Paxton Reference James and Paxton2024).

Blended finance must balance risk and return equitably between public and private stakeholders. In its early stages, public entities often provide substantial de-risking to attract private capital. However, this protection should gradually decrease to prevent overcompensating private investors and crowding out market-driven solutions. This principle was affirmed by the DAC in 2018 through the adoption of the OECD DAC Blended Finance Principles (OECD 2018a). Addressing concerns about the disparity between public risk and private return requires adaptive frameworks that adjust incentives as more data becomes available. Improved data can recalibrate expectations, reducing public de-risking while fostering sustainable private sector engagement with appropriate returns.

The risk of greenwashing and diluted impact-driven investments remains a critical concern. Ensuring accountability requires strong frameworks, transparent reporting, and rigorous monitoring. While on-going multilateral reforms seek to mobilize more private-sector funding, projections indicate they will fall short of the required scale. Bridging this gap demands targeted investments in scalable sectors and a reassessment of philanthropy’s role. As risk capital, philanthropic funding is uniquely positioned to complement public and private efforts, offering flexibility and patience to address gaps in high-need, low-return areas.

The Role of Philanthropy in De-risking and Capacity Building

As the case studies in this book illustrate, philanthropy can play a pivotal role in de-risking blended finance transactions by deploying concessional funding, guarantees, or equity investments to lower perceived risks in developing countries.Footnote ¹⁴ This is particularly significant in sectors such as biodiversity, health care, and education, where financial returns may be uncertain or slow to materialize yet the development impact is substantial.

By assuming higher levels of risk, philanthropic capital can attract private-sector investment, leveraging additional resources to bridge SDG financing gaps. Unlike traditional investors, philanthropy can support high-risk, long-term initiatives, fostering innovation, pilot programs, and research that might otherwise struggle to secure funding. Its catalytic effect can create a multiplier impact, with initial investments de-risking projects and paving the way for follow-up financing from public and private sectors. This not only expands available capital but also establishes proof of concept for emerging markets and innovative business models.

Fulfilling Underutilized Potential. Beyond direct financial contributions, philanthropy can act as a facilitator of systemic change. From financing early-stage impact enterprises to deploying first-loss capital in blended finance structures, it has a unique and underutilizedFootnote ¹⁵ potential to mitigate risk, catalyze public–private–philanthropic partnerships (4Ps), and unlock greater institutional investment for sustainable development. However, it has yet to meet its full potential: a more systemic and strategic deployment of philanthropic funds could significantly enhance risk-sharing mechanisms and build investor confidence in sectors traditionally seen as unviable for commercial investment.

As this book illustrates, philanthropic support for locally led development initiatives can help establish community-driven models that later integrate into national policies, ensuring long-term sustainability. Similarly, philanthropy’s role in renewable energy and climate finance can facilitate the development of market-ready solutions that align with public- and private-sector priorities. By filling critical funding gaps and accelerating market-building efforts, philanthropy can help unlock scalable investment pathways that enable sustainable development.

De-Risking and Innovation. Larger philanthropic organizations have pioneered innovative approaches to mobilizing investment flows. Their efforts demonstrate the leverage effect of philanthropic funding, where relatively small initial investments unlock significantly larger contributions from private and public actors. Initiatives such as The Rockefeller Foundation’s Zero Gap Fund and the John D. and Catherine T. MacArthur Foundation’s program-related investments have supported financial instruments such as social impact bonds and development impact bonds, providing a pathway for private investors to align capital with development goals while ensuring measurable impact.

Capacity Building. Beyond financial contributions, philanthropic organizations can play a crucial role in amplifying the role of partnerships and in capacity building. By convening stakeholders – including governments, private entities, and local organizations – philanthropy strengthens the collaborative frameworks necessary for the success of blended finance initiatives. These partnerships help address systemic barriers such as limited local capacity to implement and manage sustainable projects. However, philanthropy must carefully balance its catalytic function with concerns about becoming a mere “gap filler” for public aid, ensuring that its interventions drive systemic change rather than compensating for insufficient public-sector investment.

Mission Related Investment. The diversity in philanthropic funding structures also shapes how foundations engage in blended finance. Endowments, such as those held by larger foundations, can enable long-term investment strategies, allowing them to act as institutional investors deploying returns for program-related investments. Other philanthropic models, such as those reliant on benefactor injections or equity holdings in companies, may influence risk appetite and investment flexibility. Mechanisms such as portfolio guarantees or subscriptions to MDB bonds and sustainability-linked bonds could provide additional pathways for philanthropic institutions to scale their contributions effectively (OECD 2024).

Philanthropy can play a unique and critical role in shaping global financial paradigms by raising awareness, advocating for policy reforms, and influencing high-level discussions on economic restructuring. Efforts like the Bridgetown Initiative highlight its potential impact in driving financial reform. Beyond advocacy, philanthropy’s capacity for high-risk catalytic investments makes it a key player in de-risking blended finance and advancing sustainable development. However, for such outcomes to materialize, the philanthropic sector must truly lean into its de-risking potential.

Transforming the International Development Architecture

Similar to the philanthropic sector, MDBs and DFIs could do more to fulfill their potential and transition from their traditional role as direct financiers to becoming proactive mobilizers of private capital (G20 2024). This transition requires structural and operational reforms, including more flexible financing terms, expanded risk-sharing mechanisms, and better leveraging of their creditworthiness to attract private-sector investment. These transformations would position MDBs and DFIs as critical enablers of sustainable development rather than sole providers of funding – an evolution that mirrors the catalytic potential of philanthropy.

A central area for reform is integrating blended finance into the core development strategies of MDBs, DFIs, and domestic development banks. This includes designing innovative financial instruments tailored to SDG-related investments and fostering new partnerships with philanthropic organizations and private investors. Just as philanthropy can play a crucial role in de-risking transactions, making private capital more willing to engage in high-impact sectors, if MDBs and DFIs embrace similar risk-sharing approaches, they can also scale investment in these areas. The Development Committee 2024 Paper: A Bank for the Private Sector underscores this, highlighting national and regional development banks as essential intermediaries linking international capital with localized expertise (Development Committee 2024). However, while these reforms are promising, the OECD estimates that current measures will increase the MDB system’s financing capacity by only 30 percent by 2030 (OECD 2024), falling far short of what is required to close the SDG financing gap.

Building More Inclusive Development Finance

The transformation of development finance must also ensure that EMDEs play a leading role in shaping the global financial landscape. Despite generating 58 percent of global GDP and representing 86.5 percent of the global population, EMDEs hold only 40.9 percent of votes and 38.6 percent of quota shares at the IMF, while at the World Bank, developing countries hold just 39 percent of the voting rights, despite making up 75 percent of its membership (OECD 2025). Historically dominated by high-income countries, development finance governance must reflect the perspectives and priorities of emerging economies. Initiatives such as the G20 Common Framework for Debt Treatments provide a step forward by facilitating cooperation in addressing debt sustainability. However, greater transparency in funding flows and stronger coordination mechanisms are needed to prevent unsustainable debt situations.

One challenge is the lack of transparency in certain development finance flows, particularly from emerging donors such as China, whose financing is often channelled through state-owned enterprises with limited accountability. Tools like the Total Official Support for Sustainable Development (TOSSD) framework offer a complementary measurement system to traditional ODA metrics, aligning more closely with the 2030 Agenda for Sustainable Development and providing a more comprehensive view of global development efforts.Footnote ¹⁶

Trilateral partnerships involving MDBs, national development banks, and private investors can help bridge gaps in trust, enhance risk-sharing, and create more effective pathways for investments that balance public and private interests.Footnote ¹⁷ As seen in philanthropy-led blended transactions, when institutions with localized expertise collaborate with larger financial actors, they can more effectively de-risk investments and scale solutions tailored to local development priorities.

Balancing Transformation with Inclusivity. As the development finance landscape evolves, ensuring that the needs of the most vulnerable populations remain at the center is critical. While mobilizing private capital is necessary to scale resources, concessional financing and grants must be strategically allocated to address marginalized communities’ needs. This is where philanthropic capital has unique value – by filling high-risk, high-need gaps that commercial investors may overlook. Lessons from philanthropic contributions in blended finance illustrate the importance of maintaining a balance between attracting private-sector participation and preserving concessional resources for social impact initiatives.

Governance and accountability mechanisms must also evolve to reflect this shift. Efficient oversight, strong advocacy, and transparent reporting will be essential to maintaining credibility and ensuring that private-sector involvement does not undermine development effectiveness. The principles of the Global Partnership for Effective Development Cooperation (GPEDC)Footnote ¹⁸ provide a useful framework for achieving this balance. Additionally, advances in technology and artificial intelligence can enhance data collection and resource allocation, helping optimize financing flows and improve decision-making.

Recommendations for a Conducive Catalytic Finance Framework

The following set of recommendations summarize key structural challenges that currently stymie the mobilization of multiple sources of development finance.

• Increasing Access to Granular Risk Data. A major barrier in blended finance is the lack of granular, accessible risk data, deterring private investment. Initiatives such as the Hamburg Data Alliance aim to enhance transparency through interoperable datasets, enabling better risk assessment at country and project levels. Efforts by Germany, the United Kingdom, and the OECD emphasize the need for such data to boost investor confidence. Improving data interoperability is key to reducing risks and unlocking private sector investment.

• Enhancing Transparency in Credit Rating Agencies. Credit rating agencies (CRAs) influence investment decisions but often overestimate risks in developing countries due to regional biases and limited local data (Bridgetown Initiative 2024). For instance, Kenya and Somalia may receive similar ratings based solely on geography, overlooking key economic and political differences. There is growing pressure for CRAs to disclose methodologies and engage more with EMDE stakeholders. Initiatives like the Summit for a New Global Financing Pact highlight the need for government capacity building to ensure ratings reflect actual conditions.

• Addressing Foreign Exchange and Local Currency Challenges. Foreign exchange risks and high hedging costs hinder development financing in the EMDEs, where most loans are in hard currency. Platforms like the EU-supported TCXFootnote ¹⁹ offer hedging solutions but require scaling and capacity building potentially funded by philanthropy. Beyond hedging, promoting local currency investments and guarantees can reduce volatility, making long-term loans more sustainable (Horrocks et al. Reference Horrocks, Marshall and Thomas2025).

• Scaling Investable Pipelines for Institutional Investors. A key challenge in blended finance is the scarcity of investable projects. Initiatives such as the Hamburg Sustainability Platform, WBG’s Private Sector Investment Lab, and Convergence aim to expand pipelines by bundling smaller projects into larger portfolios, making them more attractive to institutional investors.Footnote ²⁰ These scaling strategies could unlock significant capital, aligning blended finance with global asset managers’ demands and with philanthropy de-risking through seed capital.

• Reforming Regulatory Frameworks. Regulations such as Basel III, Solvency II, and taxonomies designed for advanced economies often inadvertently increase capital costs for investments in the EMDEs. These regulations, while necessary for global financial stability, can discourage private-sector participation in high-risk markets. Refining these frameworks to account for the developmental priorities of low- and middle-income countries could ease constraints, reduce costs, and encourage greater private investment in blended finance projects.

• Enhancing Coordination among Bilateral DFIs. Bilateral DFIs must enhance coordination to achieve efficiencies comparable to MDBs. Networks like the International Development Finance ClubFootnote ²¹ and the Finance in Common Summit (FiCS) have advanced DFI collaboration, pooling resources and co-financing initiatives to amplify impact. A more structured approach to joint investments could further strengthen their role in advancing development goals (Volz et al. Reference Volz, Lo and Mishra2024).

• Strengthening Governance and South–South Representation. Momentum is growing to give greater governance weight to EMDEs within key financial institutions like the IMF, G20, and the United Nations. Initiatives such as the Global Blended Finance Alliance,Footnote ²² led by countries such as Indonesia, advocate for inclusive decision-making. Enhancing representation ensures that the voices of developing countries shape the governance of development finance, aligning with local needs and fostering trust among stakeholders.

• Innovation through Performance Management. To ensure that development finance remains inclusive, key steps must include establishing clear mandates, adopting KPIs, and embracing business models that foster collaboration with the private sector. Such initiatives as the World Bank’s Private Sector Innovation Lab and the participation of GFANZ (Glasgow Financial Alliance for Net Zero)Footnote ²³ exemplify this approach.

A Road Map for Future Development Finance and Philanthropy

As the Global South Impact Community’s G20 statement emphasizes,Footnote ²⁴ there is an increasingly urgent need to create a more inclusive global development finance architecture that prioritizes the needs and perspectives of EMDEs. This initiative aligns with ongoing efforts to reform governance structures, such as the African Union’s inclusion in the G20 and calls for increased representation of EMDEs countries in key institutions such as the IMF and the United Nations Security Council. While these changes may now face significant disruption due to the new emerging world order and rapidly shifting global approaches to foreign aid policy, ensuring a fairer distribution of decision-making power and resources remains critical – particularly in addressing global crises such as climate change and public health inequities.

Illustrative for these reforms is the establishment of the Global Blended Finance Alliance, an initiative born from Indonesia’s G20 presidency and set to be headquartered in Bali. This alliance aims to facilitate South–South cooperation in blended finance, focusing on mobilizing catalytic capital for investments in climate action, health, and sustainable development across EMDEs. Supported by knowledge partners such as the OECD and AVPN, this organization seeks to support Global South countries in undertaking transformative investments through mobilizing private finance.

As the financing gap for the SDGs continues to widen, innovative and inclusive solutions are urgently needed to mobilize the necessary resources. Blended finance, supported by philanthropic capital to de-risk investments, represents a promising pathway for closing this gap. By mitigating perceived risks, philanthropy can catalyze private-sector investment and unlock larger flows of capital. However, achieving the full potential of blended finance requires overcoming barriers such as fragmented financing structures, entrenched risk perceptions, and the need for a transformed international development architecture.

Philanthropy alone cannot address these challenges. A coordinated effort involving governments, MDBs, DFIs, and private-sector actors – including philanthropy – is essential. Governance reforms that enhance accountability and inclusivity will play a pivotal role in ensuring development finance reaches those who need it most. Proposals such as the Enhanced Transparency Framework, featured prominently in the substantive discussions leading up to the FfD4, could offer a road map for creating common standards of accountability among all actors.Footnote ²⁵ This framework could foster a global understanding of shared responsibility, with EMDE providers playing a more significant role. Recent developments, such as the increased contributions from EMDEs countries to the WHO, demonstrate the potential for a shift toward greater solidarity and collective action.Footnote ²⁶

Looking ahead, a flexible and adaptive road map for development finance must be resilient to future crises and align with the evolving needs of developing countries. The Sevilla Platform for Action has already laid the groundwork for such a framework. Subsequent reform and discussions are playing a critical role in shaping an inclusive and effective global financing system. By focusing on resilience and adaptability, this road map can respond to emerging challenges while maintaining alignment with the SDGs.

The global economic landscape is shifting, with greater economic weight moving toward EMDEs. To reflect this change, international development finance must embrace inclusivity, innovation, and collaboration. Blended finance, supported by an evolving ecosystem of philanthropic, public, and private actors, has the potential to address the financing gap and build a sustainable, equitable future. With a unified effort and a shared commitment to transparency, accountability, and solidarity, the world can chart a course toward a more resilient and inclusive development finance architecture.