What are the changes towards blended finance in Danish development assistance, and what can explain these?
We observe the following changes towards blended finance in Danish development assistance 1) Danish aid has a new core purpose of catalyzing private investors towards development objectives.
This is a clear-cut adoption of the reconceptualization of aid evident within the Agenda 2030 and the
corresponding Addis Ababa. This implies an altered purpose of not only aid but also development agencies; Danida and IFU’s core objective is now to attract and mobilize private partners into development assistance. 2) The increasing prevalence of thematic funds in IFU has led to a
subsequent increased involvement of private investors. The increasingly close partnership between Danish pension funds and IFU has developed in an incremental manner over a long time-period, however, the size and scope of the thematic funds have recently experienced quite significant increases. 3) In order to attract private investors, IFU is changing towards looking like a private PE-fund. It does so by explicitly stating and pursuing a growth objective, by increasing its average
investment sizes which implies more effective investment management, by substantially increasing its returns to levels of a private PE-fund, and by hiring professional with extensive experience from the private sector. These changes have been incurred over the period of the last five years. 4) IFU’s mandate has changed as a consequence of the Government’s willingness to support IFU’s objective of attracting private investors. IFU explicitly stated a wish to soften its mandate in order to enable investment growth and in order to also in the future allow investment in a group of countries that were experiencing high growth rates. This wish was met in incremental steps by first broadening the investment mandate for IFU managed funds, then expanding by only requiring the presence of Danish commercial interest, and then completely untying the mandate and allowing investments in all DAC-countries. 5) Finally, change towards an increased scope of blended finance modalities in IFU signifies a movement of activities from a politically controlled organization to a semi-autonomous
organization. We can sum up our findings of changes towards blended finance in Danish development assistance by concluding that Danish development assistance is changing towards the increased use of blended finance. It does so not only by increasingly involving as well as seeking to attract private investors, IFU is also increasingly organizing like a private organization.
We derived an analytical framework from core perspectives of sociological institutionalism to explain the changes we observe towards the increased use of blended finance. Analytical framework 1, the international aid paradigm perspective, explains changes towards blended finance in Danish
development assistance as an outcome of Addis Ababa’s ability to effectively define and strengthen a
process of abstraction, theorization, standardization, and language creation around blended finance.
This process enabled an effective diffusion to Danish development policy, which quickly internalized the blended finance concept. Analytical framework 2, the field pressure framework, explains changes towards blended finance as an outcome of the combination of the internalized institutional practices of IFU and Danida from before the emergence of the development effectiveness paradigm with the framework for appropriate behavior of the development effectiveness paradigm when it emerged.
Thus, IFU has changed towards the increased use of blended finance because its embeddedness within the Danish private sector field enabled it to easily internalize the development effectiveness paradigm and the blended finance concept when it emerged. Correspondingly, Danida has enabled the increased use of blended finance in IFU by outsourcing programs. This can be explained by a combination of Danida’s institutionalized outsourcing practice combined with the emergence of the development effectiveness paradigm. Analytical framework 3, the agency focused analytical
framework, explains the changes towards blended finance in Danish development assistance as an outcome of the collaboration between IFU and a group of Danish pension funds. The power
asymmetry entailed in the collaboration has afforded the pension funds the power to shape the character of Danish development assistance by determining the thematic fund structure and its preferential return model that have led to changes towards blended finance. Furthermore, the collaboration has opened a space for institutional entrepreneurs from the private sector to penetrate the IFU organization, which explain the intensification of IFU’s efforts to organize like a private
organization promoting an organizational focus on growth and profits, which is a change towards the increased use of blended finance.
Hence, a broad variety of institutions and organizational interaction explain change towards blended finance in Danish development assistance. These institutions are at play both at the global level, at the level of the organizational field, as well as at the level of the individual organizations and the professionals that inhabit them. The institutions, no matter their spatial embeddedness, have in common that they emphasize the benefit of involving private investors in the achievement of
development objectives. IFU’ and Danida’s interaction with these institutional dynamics, which are an
outcome of their quest to maintain and enhance legitimacy, explain Danish development assistance’s change towards blended finance. Thus, in its essence, we can explain the changes towards blended finance in Danish development assistance as an outcome of IFU and Danida’s quest to maintain and enhance their legitimacy as organizations engaged in development assistance.
Table 4 Analytical framework with concluding findings