Sumitomo Mitsui among banks stepping up deals for blended finance
Sumitomo Mitsui Banking (SMBC) and Citigroup are among banks targeting new deals in the market for blended finance, defying a number of headwinds, including a significant decline in government spending on development aid.
Deals blending public and private funds totaled $18 billion last year, down 21% from 2023, according to Convergence, a global network of more than 190 institutions and a data provider for blended finance. Over the past three years, banks doing the most blended-finance transactions include SMBC, Citigroup, BNP Paribas and Mitsubishi UFJ Financial Group, it said in a report released Wednesday.
The deals tend to target environmental and social goals, and rely on public de-risking tools such as guarantees to attract private capital. With climate-focused transactions making up more than 60% of total financing last year, blended finance has been touted as key to raising the $300 billion in annual contributions pledged by countries at the COP29 climate summit in Baku, Azerbaijan, last year.
Jeanne Soh, head of structured finance in Asia at SMBC, said she's seen rising interest in blended finance during the past few years. The bank has been working with various development-finance institutions and does around seven to eight deals a year, she said.
SMBC is seeking to grow blended finance-related revenue by about 10% year-on-year, Soh said. "This is going to be a growth sector for us, and a key focus for the bank.'
Citigroup, meanwhile, is looking into a type of blended-finance instrument that would allow sovereign issuers in emerging markets to refinance their debt and put savings toward developmental goals such as food security and education, said Stephanie von Friedeburg, a New York-based managing director in the bank's public-sector group.
The market for these so-called debt-for-development swaps "is really starting to grow,' she said.
At the same time, the market for blended finance faces a shortage of funds as richer nations, including the Netherlands and Germany, cut back on developmental aid. In the United States, President Donald Trump has taken a sledgehammer to USAID, which had been one of blended finance's most active investors.
As a result, the market now finds itself "on a precipice,' Convergence CEO Joan Larrea said in an interview.
Larrea also pointed to other problems that are hampering growth. Blended finance is "plagued by major issues,' she said. That includes a lack of strategy among donors to target private-sector funding, a failure to share data and insufficient standardized structures, which make it harder to scale and replicate transactions, she said.
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