Blended finance can substitute foreign aid for Bangladesh development: Experts  

Bangladesh will soon need to go for innovative financing for its development projects apart from utilising existing financial resources earmarked for attaining globally aligned development goals.

The suggestion came at a symposium on alternative financing on Thursday, which observed that conventional funding from bilateral and multilateral sources are drying up as Bangladesh is approaching middle-income country status.

In such a context, an innovative finance expert said that blended finance could be a viable option as it combines commercial and development financing to lower risks associated with private sector investment in official development projects.

“Blended finance has to be strategically targeted based on a careful assessment of what works in different contexts and geographies,” Peter Vanderwal, Founder of Stratigos, said in the keynote presentation.

Blended financing has already been introduced in Bangladesh’s health and manufacturing sector but not in small and medium businesses, Afsana Islam, a private sector development specialist, told the discussion.

She added, “Alternative assessment mechanism that links up to the fund managers needs to be developed in order to reach the medium and smaller tier businesses.”

Desperately Seeking Development Experts (DSDE) organised the virtual symposium on “Alternative Financing for Development Interventions: A Closer Look” with The Financial Express as its media partner.DSDE founder and Managing Director of Innovision Consulting Private Limited, Md Rubaiyath Sarwar, moderated the session.

Afsana Islam pointed out that Bangladesh is failing to utilise its existing financial resources to finance the UN Sustainable Development Goals (SDGs). “In order to achieve success in innovative financing, we need to ensure maximum utilisation of the funds in financial sources we currently have in hand,” she said.

Impact investment – a middle ground between traditional investing and philanthropy – was also suggested to be used as an alternative form of financing.

However, the experts issued a note of caution that monitoring the achievement of goals is important since most investors might solely aim to maximise their profit.

Peter Vanderwal recommended ‘Pay for Results’ (PfR), an investment strategy where the funder sets financial or other incentives for an entity to deliver a predefined outcome and rewards.

Impact bonds are based on the concept of PfR, he said. “They have the potential to drive greater efficiency, results and participation of private and institutional investors in the delivery of development projects.”

Afsana Islam emphasised that the government and donors and lending community need to work together to set a good example for PfR to attract money from the private sector. “There is no one size fits all solution to this problem,” she said adding that the public and the private sectors have to work together to create a sector-specific method of investment.

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