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Innovative instruments

Using market funds in financial cooperation


One way of providing funds for projects in de­vel­op­ing coun­tries is by blending capital market loans and grants. Germany uses this instrument in both bilateral and European financial cooperation.

Blending in bilateral cooperation

KfW Development Bank conducts Germany's financial co­op­er­a­tion on behalf of BMZ. The total volume of loan commitments has been significantly increased in recent years by blending market funds. The share of German budget funds in the com­mit­ments of KfW De­vel­op­ment Bank rose from one billion euros in 2001 to around 1.9 billion euros in 2011; as a result of the blending of market funds the total volume of com­mit­ments rose during the same period from just under 1.6 billion euros to nearly 4.5 billion euros.

Between 2001 and 2011 KfW made more than 13.6 billion euros of market funds avail­able to de­vel­op­ing and new­ly industrialising coun­tries. This is in addition to the federal budget funds it pro­vides, and it includes loans on con­ces­sionary terms from pure market funds. Since 2012 the German gov­ern­ment has guaranteed these loans if they meet the criteria for being classed as official de­vel­op­ment assistance (ODA).

BMZ is continuing to look for further opportunities to mobilise more funds for de­vel­op­ment financing through KfW De­vel­op­ment Bank.

Blending in European co­op­er­a­tion

At the level of the European Union (EU) the European Commission awards only grants for de­vel­op­ment co­op­er­a­tion purposes.

In the EU's de­vel­op­ment co­op­er­a­tion, blending is a relatively new approach. There are already several EU blending facilities that combine EU grants with loans from European and bilateral de­vel­op­ment financing institutions, such as KfW De­vel­op­ment Bank and the Austrian De­vel­op­ment Bank. The existing EU in­vest­ment facilities focus on specific regions and differ in terms of sectoral priorities, donors, structure and leveraging.

An integrated EU platform specifically for the subject of blending was set up in 2012. It will draw up guide­lines to help boost the impact of de­vel­op­ment pro­jects, im­prove the monitoring of results, and simplify pro­cedures both for the partners and for the EU member states and the financing institutions. In addition the plat­form will ensure that risk-bearing in­stru­ments are used effectively. New in­stru­ments are to be developed to meet partner demand and a dif­ferentiated ap­proach that takes ac­count of co­op­er­a­tion countries' state of de­vel­op­ment will be used.

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