Mazzucato, Mariana; Vieira de Sá, Rogério; (2025) Mind the Mission, Not the Gap - Rethinking blended finance for public purpose. (UCL Institute for Innovation and Public Purpose (IIPP) Working Paper 2025-09). UCL Institute for Innovation and Public Purpose (IIPP): London, UK.

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Abstract

Blended finance—the use of concessional public resources to mobilise private capital for development—has become a prominent feature of the post-2015 development finance discourse. Popularised by the “billions to trillions” narrative, it was promoted as a mechanism to close financing gaps in development by leveraging private investment at scale. However, despite widespread institutional adoption, blended finance has mobilised limited additional private capital, flows primarily to lower-risk sectors and geographies, and exhibits imbalanced risk–reward allocations, socializing risks and privatizing rewards. This paper interrogates the conceptual foundations of blended finance and its viability as a scalable development instrument. It challenges three core assumptions: first, that development is primarily constrained by a financing gap, rather than by the absence of mission-oriented investment pipelines; second, that public finance is inherently insufficient to meet development needs, rather than recognising that existing public wealth remains underutilised; and third, that modest de-risking interventions are sufficient to mobilise private capital at scale, overlooking the structural constraints that shape private capital allocation. The paper concludes by arguing for a strategic reframing of blended finance as a targeted tool within a broader mission-oriented approach to development finance—one that prioritises structural transformation, builds productive capacities, and generates long-term public value. Realising this potential requires a shift from market-fixing to market-shaping: blended finance must move beyond filling financial gaps to actively directing and aligning capital with public purpose.

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