Accessing Blended Finance and Innovative Instruments in Latin America and the Caribbean

Blended finance has become a central tool to close the climate and SDG financing gaps in developing regions, including Latin America and the Caribbean, by strategically combining development finance with commercial capital. It is defined by the OECD Development Assistance Committee (DAC) as the use of development finance to mobilize additional commercial finance for sustainable development, with public and philanthropic resources deployed to improve the risk–return profile of investments that would otherwise not attract private capital. In practice, multilateral development banks (MDBs), development finance institutions (DFIs), vertical funds such as the GEF, and bilateral donors provide concessional loans, guarantees, equity and technical assistance that sit alongside commercial investors in blended structures. Within this ecosystem, different types of actors access and use blended instruments in distinct ways. Governments and public development banks are typically the primary borrowers and intermediaries at sovereign and sub‑sovereign level. They issue or benefit from green, social and sustainability bonds, sustainability‑linked bonds, and innovative debt instruments such as debt‑for‑nature swaps and disaster‑contingent clauses, often backed by MDBs and DFIs. National and regional development banks are especially important in Latin America and the Caribbean, since they receive blended resources on their own balance sheets and then on‑lend or invest in climate‑ and SDG‑aligned projects implemented by private firms, municipalities and other entities, in line with national priorities. Policy frameworks such as the updated OECD DAC Blended Finance Guidance emphasise that governments should use scarce concessional resources to address clear market failures, crowd in private finance, and avoid distorting local markets. The core intended users of de‑risked capital in blended transactions are private sector actors, both as financiers and as investees. Commercial banks, microfinance institutions, cooperatives, impact funds, utilities and project developers access blended finance through instruments such as risk‑sharing facilities, subordinated tranches, first‑loss capital and guarantees, which reduce real or perceived risks and make projects bankable. In LAC, evidence from agriculture and forestry transactions shows that small producers, rural households and low‑income consumers are frequently the ultimate beneficiaries of blended finance intermediated through local financial institutions and specialized funds, even though they seldom interact directly with MDBs or global facilities. IFC and other DFIs explicitly frame their blended finance programs as tools to enable private investment in innovative or nascent sectors, not as long‑term subsidies, with concessionality calibrated and time‑bound. Non‑governmental organizations and civil society organizations are usually not large‑scale borrowers of blended debt, but they play increasingly strategic roles within blended ecosystems. The GEF and similar funds describe their blended finance operations as multi‑stakeholder platforms that bring together governments, private investors, civil society and technical partners to identify, incubate and invest in scalable solutions. NGOs often receive grants and results‑based payments to design projects, originate pipelines, provide technical assistance, engage communities and monitor environmental and social impacts around blended transactions. Dedicated facilities and accelerators have been created to help NGOs structure investable vehicles, act as fund managers or advisors, and connect their on‑the‑ground expertise with DFIs and commercial investors, effectively positioning them as structurers and impact enablers rather than central debt takers. Recent guidance converges on several policy messages for the design and governance of blended finance. First, roles should be clearly differentiated: public actors set policy and deploy development finance; private actors provide commercial capital and execute projects; and NGOs support pipeline development, structuring, execution and accountability. Second, access to concessional resources should be transparent and competitive, with clear eligibility criteria, documented additionality and robust reporting on mobilised private finance to mitigate concerns about market distortion or hidden subsidies. Third, building capacity in domestic intermediaries—especially national development banks and local funds—is critical for scaling blended finance in regions like LAC, as they translate complex global facilities into products local firms and communities can actually use. Finally, blended operations should be firmly anchored in country priorities and platforms, ensuring that instruments, sectors and counterparties reflect national climate and development strategies, local capital‑market conditions and institutional realities.