The Inter-American Development Bank (IDB) has recently published the study “A strategic approach to blended financing”, whose purpose is to explore how and to what end blended finance mobilizes private investment towards the Sustainable Development Goals (SDGs), moving away from away from emphasizing private capital leverage as an efficiency measure,  and relying instead on the concept of net social return that incorporates the wider economic effects of blended finance and its cost to the taxpayer.

The report is organized in two sections, a first section in which two preliminary questions are addressed: i) what is the ultimate goal for blended finance practitioners? and ii) what can we infer from economics theory regarding the justification and efficiency of blended financing? In the second section, some investment strategies in blended financing are described, such as: i) the creation of knowledge flows that can affect markets behaviors, and ii) fixing the weak links in complementary production networks.

The authors conclude that blended finance more efficient where the ratio of causal social returns (direct and systemic) to the public cost necessary to generate those returns is maximized, factoring-in distributional considerations.