Editor’s Note: John E. Morton and Astri Kimball’s policy brief on private capital investment is the subject of this fourth of six blog posts, from Laurence Chandy and George Ingram, previewing the 2013 Brookings Blum Roundtable.
There is growing interest in how limited public financial resources can be deployed to leverage large volumes of private capital for development. Such structures have shown success in financing the purchase of drugs to fight epidemics, extending credit to small- and medium-sized enterprises and attracting long-term commitments to agricultural investments. However, negotiating such arrangements takes time and money; there are few off-the-shelf models. Moreover, governments appear wary of subsidizing development solutions in which businesses profit.
Blended finance is the topic of our fourth session at this year’s Brookings Blum Roundtable. To support our conversation, John Morton and Astri Kimball from the Overseas Private Investment Corporation (OPIC) have authored a policy brief which persuasively argues that such financing mechanisms are impeded not by technical limitations, but by process constraints: the way different organizations—both philanthropic and private—operate including their incentive systems and culture. John and Astri suggest that development finance institutions, such as OPIC, can play a critical role in bridging the divide if they expand their focus beyond project performance to sourcing and leveraging other sources of capital.
I think blended finance, development finance, is what’s needed, is the future. The U.S. is using a model that was created 40 years ago and I think it’s way past time for modernizing our capabilities.