Blended Finance for African Infrastructure.

Blended finance is the art of using a small amount of catalytic capital to mobilise a much larger amount of commercial capital. Done well, it turns marginally uninvestable projects into bankable ones. Done badly, it is subsidy masquerading as sophistication. Here is what works on African infrastructure.

The definition that actually matters

The OECD defines blended finance as "the strategic use of development finance for the mobilisation of additional finance towards sustainable development in developing countries." In practice, it is any deal structure where:

• At least one layer of capital is priced below its unsubsidised risk-adjusted cost.
• That concessional tranche is used to improve the risk or return of other tranches.
• Commercial capital is mobilised that would not have participated otherwise.

The four archetypal structures

1. Concessional debt in the senior stack

A DFI or climate fund provides senior debt at below-market pricing (e.g. 200–400 bps under commercial). This lowers the blended senior cost, improves DSCR, and allows a commercial lender to come in alongside on normal terms.

2. Subordinated / mezzanine tranches

A concessional provider takes subordinated debt or mezzanine, which absorbs first losses below the senior tranche. Commercial senior lenders effectively see a lower LTV on the project. Common providers: Green Climate Fund, IFC-managed facilities, Climate Investment Funds.

3. First-loss guarantees

A philanthropic or DFI provider guarantees the first X% of loss. This is a capital-efficient way to transform an unrated project into something commercial lenders' credit teams can approve. Typical providers: USAID DCA, Sida, FSD Africa, IFC Blended Finance.

4. Technical-assistance grants

Not capital on the balance sheet, but often the catalyst that gets a project from pre-feasibility to bankable — paying for feasibility studies, ESIAs, legal work. Providers: AfDB SEFA, EU-AITF, KfW TA facilities.

Where concessional capital sits in the capital stack

A typical blended infrastructure transaction in Africa has four layers, from senior to junior:

• Senior commercial debt — commercial banks, institutional investors (40–55%).
• Senior DFI debt — IFC, AfDB, EIB, Proparco (15–25%).
• Subordinated concessional debt — GCF, CIF, blended facilities (5–15%).
• Equity (sponsor + DFI) (20–30%).

The concessional layer is usually the smallest — but it is the one that unlocks the senior commercial layer on top.

Key sources of concessional capital for Africa

• Green Climate Fund (GCF) — up to USD 250m per project for climate-eligible infrastructure.
• Climate Investment Funds (CIF) — CTF, SREP, PPCR, FIP windows.
• IFC Blended Finance facilities — including the IFC-managed GAFSP, Canada-IFC Blended Climate Finance.
• AfDB SEFA (Sustainable Energy Fund for Africa) — grants and concessional debt for clean energy.
• FSD Africa Investments — first-loss risk capital.
• Team Europe initiatives — EFSD+, DFI-led blended facilities.

The principles that prevent misuse

The DFI Enhanced Principles for Blended Concessional Finance set five tests. Lenders and committees apply them:

• Additionality — would this deal happen without the concession? If yes, the concession is unjustified.
• Crowding-in — is private capital being mobilised at a meaningful multiple?
• Minimum concessionality — is the concession size the smallest that will unlock the private capital?
• Commercial sustainability — will the project stand on its own post-concession?
• Reinforcing markets — does it build replicable transactions, or is it a one-off?

Common mistakes in blended structures

• Oversizing the concessional tranche — lenders notice, and it damages the project's commercial credibility.
• Applying concessional pricing where commercial pricing would have worked anyway.
• Failing to document the exit from concessionality — replication projects should need less.
• Treating the concessional tranche as cheap money rather than as a structural risk-transfer instrument.

How we structure blended transactions

On every blended-finance engagement we begin with a bankability gap analysis — what exactly is preventing commercial capital from participating at scale? That gap then drives the structure:

• Tenor gap → concessional long-tenor debt.
• Credit gap → first-loss guarantee or mezzanine.
• Revenue-ramp gap → debt-service reserve facility or viability-gap funding.
• Feasibility gap → TA grant.

The principle is simple: concessionality should target the specific cause of unbankability, not blanket-subsidise the entire project.

Related reading: The 5 Pillars of a Bankable Project · Engaging AfDB, IFC, DEG & Proparco · Mobilising Diaspora Capital