Innovative financing series: Private finance mobilization

Introduction

Achieving the SDGs requires a scale of investment that far surpasses the capacity of public finances alone. With ODA levels insufficient to cover the multi-trillion dollar annual financing gap, mobilizing private capital has become a critical component of the global development agenda. This approach aims to channel private sector resources, innovation, and expertise toward sustainable development in low- and middle-income countries.

This Commentary is part of the Donor Tracker's series on innovative financing and explores the mechanics of private finance mobilization, outlines its importance in the current development landscape, examines the barriers preventing its expansion, and proposes actions to unlock the full potential of private finance.

What is private finance mobilization?

Private finance for development refer to all kinds of financial resources from the private sector, which can take various forms, including loans, grants, equity, and debt. FDI and remittances sent home by migrants account for the majority of private flows to low- and middle-income countries. In general, the volume of private flows to low- and middle-income countries has often exceeded US$1 trillion annually in recent years—far more than ODA, which has remained around US$200–240 billion per year. However, only a part of private flows to low- and middle-income countries is directed toward sustainable development.

Private finance mobilization refers to the process of attracting these private flows to contribute to sustainable development in low- and middle-income countries, leveraging concessional capital (such as grants or low-interest loans) from public resources. This type of finance is often considered blended financing. This is meant to accelerate countries’ progress on the Journey to Self-Reliance. Recognizing the need for greater resources, the 2015 adoption of the UN SDGs called on MDBs and DFIs to “leverage billions to attract trillions” in investment of all kinds, especially from the private sector. Between 2012 and 2020, almost US$300 billion was mobilized from the private sector by official development finance interventions, mostly by MDBs and DFIs. While MDBs and DFIs adopted a joint methodology in 2016 to consistently measure private finance mobilization (split into private direct mobilization and private indirect mobilization), there is no aligned tracking method shared with the wider development community.

To mobilize private capital, MDBs, DFIs, and donors have adopted various instruments, including guarantees, syndicated loans, collective investment vehicles, special purpose vehicles, credit lines, and co-financing. Nearly half of mobilized private finance in 2018–2020 came from four MDBs, led by the IFC, the EBRD, the EIB. Bilateral DFIs, especially the US DFC, also play a major role, mainly using guarantees and direct investments. While some proponents claim that US$1 of public or catalytic capital can leverage US$8 of private investment, despite many financial instruments, actual leverage is modest. On average, US$1 from MDBs mobilizes nearly US$0.75 in private finance. With MDBs lending US$150–200 billion per year and DFIs from major donor countries lending US$50–80 billion, even conservative leverage could potentially mobilize US$150–210 billion in private resources annually.

Why does private finance mobilization matter?

Private capital is crucial to addressing the scale and complexity of today’s development challenges. The annual financing gap to achieve SDGs in low- and middle-income countries stands at US$4.3 trillion annually - far beyond what public resources alone can provide. In 2023, MDBs and DFIs mobilized US$87.9 billion in private finance for low- and middle-income countries - a 24% increase from the previous year, yet still only a small part of what is needed. This shortfall highlights the need for scalable private sector engagement to close the gap. Against this backdrop, the Seville Commitment from FfD4 marks a pivotal moment, calling for mainstreaming blended finance with greater focus on sustainable impact, country ownership, and transparency.

Private capital has not been effectively mobilized to date and is especially falling behind in LDCs. Private capital mobilized from DAC members represents a minimal amount of total external financial flows in LDCs compared to non- LDCs. The majority of mobilized private capital is concentrated in a handful of countries with more developed investment markets, such as Brazil and India.

Limited private capital has been mobilized into human development sectors. Private capital is mainly mobilized towards economic infrastructure and services where returns are clearer and risks are more manageable. Social sectors such as health, education, and water—critical for inclusive growth—attract less than 10% of mobilized private capital, relying instead on public funding.

Private investment brings not only financial resources but also expertise, efficiency, and the ability to scale up solutions contributing to the SDGs. The private sector is a driving force in innovation, introducing new business models, advanced technologies, and creative approaches to development challenges. Harnessing this potential in a more inclusive and targeted way is critical for future progress. Paired with development financing that can be blended with private capital and provide technical assistance, it can help develop a stronger pipeline of investable development solutions.

What are the barriers to mobilizing more private capital?

Despite the range of mechanisms available to mobilize private capital, there are several persistent barriers:

• Market and investment environment risks deter private investors: Many low- and middle-income countries face issues such as credit risk, currency fluctuations, and unclear or changing regulations. These factors make private investors less willing to commit funds, especially when returns are uncertain;
• A weak pipeline of investable projects and limited data transparency hinder investment: In many low-income countries, there is a lack of well-prepared, investment-ready projects that meet private sector standards. In addition, reliable data on risks and expected returns is often missing, making it difficult for investors to make informed decisions; and
• Misaligned institutional incentives and development gaps prevent collaboration: There is often a disconnection between the development community focused on long-term outcomes and investment committees prioritizing profits and speed. This slows decision-making and makes it challenging to integrate social and environmental performance into financial assessments.

Conclusion

What can be done differently?

Invest in market systems by strengthening structures and sharing risks: Blended finance must move beyond fragmented, one-off deals to become more efficient, impact-driven, and scalable. The OECD (2025) calls for approaches that are strategic and systemic, locally driven and aligned with national priorities, transparent and accountable, and fit for purpose to mobilize capital at scale. Innovative blended finance structures—such as equity-like instruments, state-contingent subsidies, and auction platforms—can help share risks more effectively between public and private actors. At a broader level, structural initiatives like the DSSI and reallocating SDRs can further enhance financial stability, helping create a more resilient and attractive investment environment for private capital.

Invest in project preparation and promote transparency: Building a strong pipeline of bankable projects and providing reliable information on risks and returns are crucial for mobilizing private capital. The FfD4 agenda highlights the importance of pooled catalytic capital facilities and common access frameworks, especially for MDBs and DFIs, to promote transparency and streamline participation. At a broader level, the MDB reform agenda seeks to put in place catalytic instruments and portfolio-level approaches to mobilization, aiming to expand the scale and impact of private finance in development.

Align incentives and facilitate cross-sector collaboration: Mobilizing private capital at scale requires alignment of incentives across the development and investment communities. This means working toward a common definition and clear guidance on how to use blended finance, developing shared metrics, and encouraging joint design of solutions between development and investment communities. Regional and global frameworks can help create enabling conditions: for example, Africa’s Agenda 2063 emphasizes industrialization, infrastructure, and high-value job creation, offering great potential for private sector engagement. Additionally, stronger geopolitical representation—such as the AU’s G21 membership—can give African countries more leverage to participate in global financial and economic policymaking, ensuring their needs and perspectives on private sector financing are considered.

Ensure resource mobilization strategies prioritize domestic financial resources: Domestic financial resources are by far the largest source of development finance in low- and middle-income countries. Rather than relying on international private resource mobilization, countries, MDBs and DFIs should prioritize expanding and leveraging domestic resource pools, both private and public. This means not only broadening the tax base, formalizing the informal sector, and strengthening tax policy and administration, but also using domestic public funds to attract and mobilize additional private capital for development. Developing local bond markets, modernizing tax systems, and fostering good governance and transparency are also critical steps. Ultimately, domestic resource mobilization should be at the heart of development strategies to maximize the impact of home-led efforts.