Utilizing Blended Finance to Help Developing Countries Build Back Better
Friday, Feb 19, 2021

Utilizing Blended Finance to Help Developing Countries Build Back Better

Virtual Executive Panel held for International Development Week 2021.

Anita Bhatia - Assistant Secretary-General and UN Women’s Deputy Executive Director for Resource Management, UN System Coordination, Sustainability and Partnerships

The Honourable John Rwangombwa - Governor, Central Bank of Rwanda

Joan Larrea - CEO, Convergence

Opening Remarks:
Cheryl Urban - Director General, Economic Development and International Financial Institutions, Global Affairs Canada

Moderated by:
Lindsay Wallace - Advisor, Toronto Centre

Listen to the full discussion:

Read the full transcript:

Babak Abbaszadeh:         

Hello everyone, welcome to Toronto Centre's international development week panel on blended finance. We're very happy to contribute to this important week for the Government of Canada. [foreign language 00:00:12]. I am Babak Abbaszadeh, CEO of Toronto Centre. Since establishment in 1998, we have trained more than 13,000 supervisors from 190 jurisdictions to become change agents for building more stable, inclusive financial systems. Without financial stability and financial inclusion, SDG goals cannot be delivered very efficiently or effectively.

We're living in the new normal of COVID-19, where all countries are fiscally constrained, and development dollars need to stretch more than ever to build back stronger. [foreign language 00:00:55] This is where blended finance comes in. We're delighted to be joined by a key senior leader in blended finance, Joan Larrea, CEO of Convergence, and our good friend. Welcome, Joan.

Financial sector supervisors and regulators have not been engaged sufficiently in the blended finance conversation. It is important for emerging markets supervisors to be aware of blended finance tools, and be well equipped to ensure blended finance investments are aligned with financial sector stability. We recently published blended finance implications for supervisors at Toronto Centre note, which we hope is the first step in encouraging a greater dialogue between regulators and the blended finance community. We are pleased and honored to have with us the Honorable John Rwangombwa, Governor of National Bank of Rwanda, and former finance minister and our dear partner in Africa.

Finally, we know that the pandemic has disproportionately affected women and their livelihoods. [foreign language 00:02:25]. We are excited to have Anita Bhatia, Assistant Secretary General at UN Women, as a senior gender expert in this conversation. Our moderator, Lindsay Wallace, is well known in International Development circles. She's also the co author of Toronto Centre's publication on blended finance. We are happy to have her on our team.

Finally, we're honored to have Cheryl Urban, Director General for Economic Development and Global Affairs, Canada, to deliver a brief message from the Government of Canada. I met Cheryl about four years ago and was impressed with her as a thoughtful and very capable leader. A big welcome to all our Talking Heads. All their bios have already been distributed to you. Toronto Centre's mission is sponsored by our key funders; Global Affairs, Canada, Swedish, Sida, and the IMF. We're also privileged to receive project funding from Jersey Overseas Aid, Comic Relief, and USAID. [foreign language 00:03:41].

Cheryl Urban:                 

Thank you very much, Babak. Good day everyone, Bonjour. It is a great pleasure to be here with Canada's friends and partners from around the world. I'm pleased to represent the Government of Canada at today's event with the Toronto Centre, which has been a long standing partner in promoting stable and inclusive financial systems around the world. [foreign language 00:04:11].

The way towards a better world is implementing the 2030 Agenda for Sustainable Development with a focus on inclusive partnerships, SDG 17, to achieving these goals. A key action area under Canada's feminist international assistance policy is promoting economic growth that works for everyone. One that creates good decent jobs and empowers people to improve their lives and those of their communities. [foreign language 00:05:06]. The pandemic has meant women and girls today face even more adverse effects on their education, food security, health, livelihoods and protection than before. The pandemic has also put pressure on countries' fiscal resources, and increased the need to leverage private capital to address their immediate needs as well as future goals.

To address these challenges, we know that our efforts need to be creative and coordinated across a diverse range of stakeholders; from innovators, regulators, and financiers, who can build the ecosystem to facilitate blended finance partnerships. For these reasons, we welcome Toronto Centre's efforts in bringing together distinguished panelists from the National Bank of Rwanda, Convergence, and UN Women, to explore ways of leveraging blended finance partnerships and advancing gender focused investments. [foreign language 00:06:17] I encourage you all to consider how you can take a gender responsive and inclusive approach to your partnerships and efforts towards building back better in order to meet our shared goals. I wish everyone great success in your respective efforts. Thank you. Merci beaucoup.


Babak Abbaszadeh:

Thank you very much, Cheryl, for those thoughtful comments. And at this point, I'm going to ask Lindsay to please take it over, start the panel. Cheryl and I will magically disappear from your screen, but we'll be watching everybody. Thank you. Bye.

Lindsay Wallace:            

Thank you so much, Babak, and thank you to all the panelists for joining today. I just have a few points of housekeeping and then we'll get to the session. [foreign language 00:07:45]. The structure of the panel today is going to be in two rounds of questions to the panelists. And after each round, the audience is invited to ask questions. Please use the Q&A function at the bottom of the Zoom. And please, to the panelists and everyone, when you're not speaking, please put yourself on mute.

So with that, I'm going to start with the first round of questions. And the first one goes to Joan from Convergence. Please tell us a little bit about blended finance, what is it? What do you hope to, and what do we collectively hope to achieve with blended finance? And speak a little bit about the role of Convergence as a key actor in the blended finance space.

Joan Larrea:                    

Sure, and good morning, and good evening, as the case may be to all of you. If you had told me five years ago that I will be having a conversation about either gender or blended finance with a regulatory and central banking crowd, I would have laughed at you, but here we are. And not only that, but we're all doing it virtually, which is even stranger. But not only has the Toronto Centre dived into this subject matter, but produced a great report, which I really recommend everybody if you haven't already done so as homework for this, that you go back and read it. It's right on point about blended finance.

So basics, what blended finance is in plain English, it's the careful use of money that is not operating on market principles, money that is concessional or catalytic, and is there to drive impact. It's the use of that kind of money to attract private sector capital into investments. And the whole point of doing that is to expand the volume and the effectiveness of capital that's going into achieving the Sustainable Development Goals. And we at Convergence focus in the emerging markets in particular where the funding gap is the biggest.

The types of blended finance transactions out there range from the very small experimental, trying to crack difficult subjects by creating revenue lines kind of structure that gets donor capital and private capital work together all the way on the other end of the range to large transactions that pull institutional investors into this subject matter of the SDGs, where they otherwise would fear to tread. And it's that end of the spectrum where I think there's some interesting transactions happening that perhaps are of particular interest in this group. Those are the kinds of investors that are regulated by some of the constituency of the Toronto Centre.

Blended finance is not a cottage industry. When we got started, we didn't know how big it was or who was doing it, but now we've been able to record the experience. We know that there are in the past 10 years, over $140 billion worth of transactions that we at Convergence have managed to document having happened and confirmed our blended finance, which translates to 14, $15 billion a year happening. Nowhere near the amount we need, but a large scale of business. We know that there are hundreds of transactions out there and thousands of participants who have either once or repeatedly been in on these transactions, both from the donor side to the private sector side. And we know that the structures that are useful to putting these kinds of money together are becoming more standardized, which is exciting, because the more standard these structures are and the larger they are, the more likelihood you have of bumping us up to the trillions from the billions, which is where we are.

Very quickly, what is Convergence? We were set up five years ago with a lot of help thank you from Global Affairs, Canada, to build out the field of blended finance. And since we got started, we have been able to generate large amounts of data on the subject matter. We put out knowledge products, if you go onto our website, you can read full fledged case studies and read things from other parties and the Toronto Centre's publication will indeed be on our website, if it isn't already. We also provide training and we curate a community of 100 or so institutions who are central to the theme. We among other things, facilitate deal flow among them, and we actually have some grant resources of our own to help early stage concepts hit the market.

So just to give you an example, or two, if I could, of what a blended finance transaction would look like on the large side of the spectrum, where it would involve institutional investors of the sort who might be, like I said, regulated by or subject to regulatory constraints. Just to give you one example, there was one that happened in 2019 that was a bond issuance. It was the first green bond issuance issued by Kenya. And what Acorn Holding's structure did, what they're going to do with the bond issuance proceeds. They're a student housing developer in Kenya. And what they were going to what they were planning to do with the proceeds was to finance the construction of student properties for about 5000 students in Nairobi. The bond issuance would never have gotten a credit rating that would have allowed the right investors to come in, if it were not for blended finance.

What happened was GuarantCo, which is part of the PIDG group, and operates with donor money stepped forward, and provided a partial credit guarantee for Acorn Holding's issuance. And that bumped it up to a B1 on the Moody's scale. That raised, let me see if I remember, 4.3 billion Kenyan shillings. You can't do that operating strictly with commercial money. Or if you had, you would end up with pricing that would not be something of interest, either for the issuer or for the community being served. That's one example, and I can give you more as we go ahead, but that would be one example.

What is Convergence? I mentioned that already. I think we're good there. Probably, let me stop and turn it over to our next speaker. And I'm happy to take more detailed questions in a second.

Lindsay Wallace:            

Thank you so much, Joan. That's very helpful for for kicking us off. My next question is going to go to the governor. So from your perspective as the Central Bank Governor, can you please tell us a little bit how blended finance plays out in Rwanda? Is it an important part of your national investment agenda to help boost the domestic resource mobilization, and can you share some examples of blended finance in action in Rwanda? Governor, apologies. You're on mute.

John R.:                            

Yes, yes. Sorry. I just realized I was still on mute. Thank you, Lindsay. And let me start by thanking the Toronto Centre for organizing this. I think it's really an interesting discussion, and good timing when we are looking at even bigger challenges for financing, economic recovery, as we come out of this crisis. We should be coming out of the crisis before the end of this year. So I'll use the Rwandan development experience to try and bring in what we see as blended finance impact on our development agenda. Rwanda had a good experience in the last two decades of high growth of around 8%, on average per year. And this was mainly driven by government money and donor money; investments we linked to these main sources of financing.

But as we move into bigger needs of financing to achieve ambitious targets for our long term development agenda, we think private sector financing has to come in and has to play a key role. So our vision 2050, which is our long term development blueprint encompasses or underpins the UN 2030 agenda, and has broad ambitions in terms of development. For example, developing Rwanda into a high middle income country by 2035. And into a high income country by 2050. For those who don't know Rwanda a lot, today, we are still a low income country, so we have that ambition to develop into middle income and high income in the next 30 years. To achieve this, we've as I said, brought in private sector financing as a key source of financing. When we look at the need to achieve our SDGs. A study done by the IMF and the Minister of Finance identify that we need at least 20% of GDP of additional financing in the next 10 years.

So it is in this context that the role of branded financing in mobilizing private sector in developing is really gaining prominence in our country. So fostering a culture of branded financial partnership is a significant strategic priority in our national development agenda. It is a strategy we believe is both effective and can be shared across different countries or different economies. Over the last decade, we've embarked in a lot of reforms to create an enabling environment that allows private sector investment, and that has really pulled in different resources. We see a lot of private sector investment in the financial sector, in ICT, in tourism, in energy, and in agriculture, which is one of our key sectors of our economy. So blended finance as part of this private sector financing has helped implement projects that requires some de risking or technical assistance with the majority of the projects mainly in the energy sector.

For example, in 2019 alone, 12 investment deals were closed in the energy sector. These had an average ticket of around 14 million each. And this is on top of another two big projects that had been closed years earlier of 150 million each. So if I use this energy sector, one is a key sector of our own development agenda. Studies showed that where we have energy, the lives of the population change immediately. So as part of the government agenda, the government has taken an ambitious target of access to electricity for all by the year 2024. And as you can understand, that required a lot of investment into electricity generation. So working with the World Bank, the government was able to put in place a framework that allows independent power producers to produce energy in our country and sell to the government, which now distributes it and sells it to the overall consumer. And also, government invest in the transmission and distribution lines.

So with this, guaranteed through the power purchase agreements from government, we are able to tap into big investments in the energy sector. When I say energy sector, you take it as really electricity production mainly. We've seen Rwanda moving from an energy deficit, electricity deficit country in just 10 years to now an exclusive surplus country today because of these investments we are getting from private sector, which was enabled by government coming in to guarantee the purchase, the uptake of the energy produced. Working with development partners in terms of, again, de risking the investments, some of these big projects have been able to get guarantees from MIGA and the other guarantee agencies outside there. When you look at the pipeline, again, we have for the energy production, we have confidence that we are going to achieve these ambitious targets set by the government. So this is one of maybe key sectors that I can use to demonstrate how blended finance has worked to support the development in Rwanda.

One other example that I would want to highlight, I don't have many minutes I'm remaining with of my five, but the other point, simple or... not really simple, but one key strategic project that I want to highlight here is we are currently investing in an interoperability switch for digital financial services. This is a switch that will link fragmented digital financial services and make it cheap, affordable, accessible to the population. Again, in our effort to have access to finance for all by the year 2024, I'm using the year 2024 because that's where our medium term development plan ends. And the government has that ambition of really having every Rwandan have access to financial services. We think digital channels are the quickest means to break the barriers that will allow everyone Rwandan to access financial services. So an interoperability switch that brings together different digital products is one of the solutions we think is going to really expedite this access to financial services.

[inaudible 00:22:19] committed to coming working with the private sector investment. Government put in 60%, private sector investment put in 40% equity. But before that, we worked with, again, a development agency, what we call Access to Finance, Rwanda, I think, Lindsay will be remembering that by the time we had Rwanda, because DFID was key in setting up the Access to Finance to Rwanda. So this finance, technical systems to put up business strategies, do the feasibility study business plan for this, the costing structure for this switch. And so by the time government comes in with a private investor to invest in the switch, at least we have this background or work done by the support of the government partner. And this will allow the products of this interoperability switch to be cheap and accessible to the masses. And so we think, again, through one of the key partnerships between government, private sector, and the development partners, we are able to achieve one of our key objectives of, as we say, moving Rwanda to a cashless economy.

I would have many more examples here, but I think I'll stop here for now. In the interest of time, I'll be happy to discuss more on this topic if time allows. Thank you.

Lindsay Wallace:            

Thank you so much, Governor. Those are great examples. And for my third question, I'm just going to turn to Anita. As Babak mentioned in the introduction, we know that the pandemic is affecting women and girls much more severely than others. Can you speak a little bit about the importance of blended finance and addressing gender issues and helping to achieve SDG 5? And maybe speak a little bit about what kind of sectors or investment types can be used by blended finance actors to address the challenges facing women and girls.

Anita Bhatia:                   

Thanks so much, Lindsay. And first, let me just say it's a great pleasure to be here with all of you today. Many thanks, and congratulations to the Toronto Centre for hosting such an important panel. Really happy to be joined on this panel by Joan and John. As the non-J person on this panel, let me start by just saying that I think the issue of blended finance and gender is a really important one. But actually the issue finance and gender is probably the overarching issue, and blended finance within that landscape has a very important role to play. Before I get to the specifics of why blended finance for helping to solve for gender inequality, let me just say a few words about the impact of the pandemic on women, which is recognized widely, but I don't think in all of its dimensions. I want to highlight just three things that we saw happen to women during the pandemic, and the three areas where women were most badly hit. And those were income, health, and security.

Income, because a lot of the jobs that were lost by women were in sectors that are heavily feminized; retail, transportation, travel, tourism, domestic work, health, because we saw that, as government's rightly shifted their attention to dealing with the public health crisis, access to reproductive services, maternal health, all of those services really fell by the wayside. And then security, because we saw an alarming and exponential increase in violence against women. Those were the problems that we saw at the inception of the crisis. And 11 months later, what we are seeing is how these particular problems are playing out. What we are seeing now and what we fear now is that there is a big drop off and female labor force participation and women are not going back to work in the same way, because the thing that has been made really visible during the pandemic is the care burden on women.

Basically, the world is now divided into those women who have care burdens, and those who don't. I don't know how many there are in that group who don't, because most of us do. If it's not children, it's elderly parents, or... But even before the pandemic, women had three times the care burden that men did. We don't have the data yet on how much that has changed, but we have plenty of anecdotal evidence that women are choosing not to go back to work. That, of course, is going to have long term consequences on GDP, on productivity, and on gender stereotypes and cultural norms about the role of women. I fear, a reversion to 1950s stereotypes where mommies at home, cooking, caring, and men are at work. We hope that doesn't happen, and some of the data that is trickling in is showing that this is happening more in emerging markets, and not so much in richer countries. But of course, we will need a longer time to actually get the data to understand the full extent of the problem. So I just wanted to paint a picture of some of the issues.

The other really big issue that I want to point out. And John, this will be of interest to you, and I think to people who are listening, who are really paying attention to how the stimulus packages are working. Most countries have had to borrow enormous sums of money to make their way through the crisis. And these stimulus packages have, I'm sorry to say, been largely gender blind. And that's not because people are ill intentioned, but that's because in the rush to disperse money and to just keep economies afloat, it hasn't been possible to do the kind of targeting that one would want to do. So of course, some countries have done what are essentially unconditional cash transfers, and have been able to reach women. For example, in Togo, the government was able to make sure that money reached women, because they used their mobile telephony network to get money to women.

In India, because there is a digital ID system, and that goes to the point, John, you were saying about the effects and the really dramatic effects that digital infrastructure can have on inclusion. In India, the government was able to reach 200 million women with cash transfers, because they have digital ID. And so they were able to find the women to get them the money. But by and large, our research, and we have published something called a Global Gender Policy Tracker, along with UNDP. It shows that less than 20% of countries who have stimulus packages in place had gender sensitive policy measures. By and large, the policy measures have been gender neutral, and in some cases, gender blind. So what does that mean for the recovery? It means if we really want to build back better, if we want to achieve the SDGs by 2030, and if we want to use the opportunity of the crisis to make sure that we are building back, not in the old way, but really building inclusive just societies, we're going to have to do something differently. And we have to keep in mind the 50% of the population that hasn't been really thought about.

So where does blended finance fit into this? First of all, countries now who have been on this massive borrowing spree, A, some of them are going to face a debt crisis, and there are going to be restructuring sovereign restructurings coming down the pike. By June and July, I think we will see countries coming forward saying they need to borrow more or do something else. Some countries will have market access and some will not. And those that have market access are in a relatively privileged position. But those who don't, and those who need some kind of support, will need to depend on some blend of finance in order to attract commercial capital, because for many countries, they have reached the limits of what they can actually borrow from the international financial institutions. So they do have to look for alternative sources of finance. And for these countries, which may be considered high risk or not investment grade, blended finance can play a really important role. But how do we then make sure that this money is actually going to women, it's serving women on businesses, it's helping women get back on their feet, it's helping women rejoin the economy? And here, I think the international development community has some thinking and work to do.

One of the things that we at UN Women have been exploring is the use of thematic bonds, in particular gender bonds. We would like to see the creation of a gender bond market. And I'm happy to say, we are in conversation with a few countries, mostly middle income countries, to see that in their borrowing, because they have market access, they have a well structured borrowing program already in place. When they borrow, can they actually tap into the huge pool of institutional investors and pension funds who are interested in ESG lending. And can they then designate those bonds as gender bonds by driving the use of the proceeds towards programs that are actually gender sensitive. So we're actually doing that now in a number of countries. And also, as UN Women in conversation with a number of countries where purely commercial money is not going to want to take the risks that are needed. And that's where blending becomes really important, because if we can catalytically use some donor money to buy down the risk and attract commercial capital, then we really have an opportunity for these countries to borrow sustainably.

Many countries have euro bonds that are coming due that will need to be rolled over, so they have to have fresh borrowing. So what we're saying to them is if you're going to borrow, then borrow for gender. Borrow for gender and drive these resources to programs that target women in the sectors where they are most highly represented. You asked about what sectors this would be? Agribusiness for one. Agriculture is heavily feminized, particularly in emerging markets. Anything in financial services, we need to get more financial inclusion for women, so that sector. Infrastructure, even, although it's not something you typically think about as a female sector, the impact of infrastructure on women is huge, because it can impact their access to markets for them to sell, for small businesses to be able to connect, supply and demand. Frankly, there are no sectors where women aren't really engaged.

Yes, there may be a higher proportion of women in agriculture than some other sectors, but I actually think a blended finance approach to borrowing can result in substantial tangible benefits to women, particularly if you have agencies like ours, helping the government to identify those programs that we already know of will have a disproportionate positive impact on women. Let me stop there, but very happy to take additional questions.

Lindsay Wallace:            

Thank you so much, Anita. And thanks, panelists, for that first round. So we certainly heard about the importance of blended finance as a catalytic tool, some great examples from Kenya and of course, the ones from Rwanda. And then, of course, the challenges, how the pandemic's really affecting women. But I'm really excited about the gender bond idea, and just really thinking through some of the great innovations and financial innovations to address the challenges that we're collectively facing. So we do have a few questions. The first one is, do we have an idea about the amount that the private sector is engaged to commit in blended finance? I'm going to pose that to Joan, who at Convergence collects a lot of the data on blended finance.

Joan Larrea:                    

Yeah, we have a database of somewhere between five and 600 transactions, and we can see the total amount of money that those transactions have represented over the past decade or so. This is a small proportion of the transactions out there, it's just the ones that we have been able to record. And we are seeing an annual business flow, about $15 billion, it varies by year. That's the total transaction size, you can be comforted that probably the majority of funding in each of those transactions is coming from the private sector, but we don't have the granularity of data to give you the exact number within.

May I jump on Anita's comment, though, for... Can I just hijack this for a second? Great comments, and I just want to go back to what our data shows about blending for SDG 5. We know that about 14% of the transactions in our database have touched on gender issues, sorry, 24%. And of those 14 percentage points of them have explicitly gone after gender. It was what the transaction intended to do as opposed to just being a happy outcome of it. So there is a lot happening already in gender in the blended space, particularly, and I think this is because to do a blended transaction, there's somebody in the deal who's saying, "I'm not operating a market principles, I'm operating for impact. I'm a donor. I'm a government. I'm a philanthropic institution." So there's always somebody minding the fort as it were on impact.

There's a whole lot more to be done for blending for gender. I'm going to obviously be chasing Anita down after this conference to talk to her more about that stuff. But thanks for the question, I just wanted to insert a few data points on that.

Lindsay Wallace:            

Thank you so much, Joan. Our next question relates to, how do you increase agreement between the private and the public sectors or increase the knowledge sharing between the two? A sense of the public sector's highly regulated. And how also do we ensure that impact is focused on the people that need it the most? I'm going to turn to the governor for to answer this question. How in Rwanda, and some of the examples, have you been able to address that gap between maybe perceptions of how the private sector operates and how the public sector operates?

John R.:                            

Yeah, thank you. Good question. I hope I can phrase it in a way... when look at maybe the Rwandan government, the way we've been working and trying to address the big challenges we had of developing our country from the tragedies we had in the mid '90s. We needed to act as a private sector organization. We are a government, but when you look at the principles guiding the management of government business in Rwanda, it's really like corporate governance oriented. So it makes it easy for us to engage with the private sector. I think the most important thing with private sector is trust. And so what we've been doing all along in our development agenda, in our engagement with partners, either the development partners, as I said, in the first part of our development's journey, we really worked with the development partners and we build that trust between us as a country, as a government, and our development partners focusing really on accountability and efficiency in use of any money we had as public money.

So building that track record, when we started engaging private sector, it was easy to build trust between us and the private investors because we did a lot of reforms again, as I said, in the last 10 years, to remove all the barriers, the bureaucracies around government that really make it easy for the government sector to transact with us to do business in Rwanda. But again, we've been working with our partners, as I said, the World Bank, the IMF, DFID has been a key partner, the African Development Bank. And these, the trust they show, they are able to act as anchor to private sector, that don't know Rwanda quite well. Like when we went to issue our first euro bond in 2013, we had just started doing our sovereign rating, I think we had about five years of sovereign rating. And so the documentation between us and the IMF and the World Bank acted as assurances to the private sector.

So I think what's important as we work with this private sector institution is the trust and honoring our contractual obligations, whichever, when we enter into any agreement with any private institution. That has helped us really to build that relationship between us and our partners as a private sector, as partners involvement. At the end of the day, it's a win-win situation for the private investor, but for us as government that want to expedite development of our country and improving the lives of our population.

Lindsay Wallace:            

Thank you, John. I'm actually going to turn to the the second round of questions to the panelists, just mindful of time. The first one is going to go to Anita. A recent OECD report on blended finance found that there are a few publicly or privately led blended finance funds focusing on gender, whereas there is a number of publicly funded blended finance facilities. One of the questions that this has raised is, is there a perception, and what do you think of that perception, that investments that target women are inherently riskier? Could you just comment on that or any reflections on some of the challenges of raising funds for targeted blended finance, gender focused initiatives?

Anita Bhatia:                   

Yes, thanks for a really good question, Lindsay. I think, yes, there is a perception of risk around gendered activities, which is quite dissonant with the reality, because actually women can be very good credit risks and we know that. If you go back to the early days of when Grameen was set up, and what Muhammad Yunus said about discovering that women were actually better credit risks than men. The perceptions of risk are very often unfounded, and not based on reality, but sometimes on myth and stereotype. But there is Now thankfully, plenty of data to show that actually lending to women or gendered activities are not necessarily more risky than others. However, I think there is a huge gap still, in terms of having common standards. We have, for example, social bond principles, but we don't really yet have gender bond principles just to go back to the issue of gender bonds.

So there is some work to be done in terms of standards setting, and I think we need to work together as a community to make sure that we are doing more to incentivize more finance going towards women, by working on standards. I also think that in terms of indicators, generally there is less work that has been done to make sure that definitions of gender social programs and gender indicators are standardized. We're already seeing this because we're in conversations with four different governments, four different sovereigns around potential gender bond issuance. The level of development of indicators varies hugely from country to country. So we obviously as UN Women have a role to play in the standardization, but we actually need the development community broadly to understand that we really need to bring the financing for development and the gender equality agendas together more explicitly.

There is a very big gap because the people who work on SDG 5, that world is very different from the world that's working on FFD. But I want to say that here, Canada has been a real leader, and Canada and Jamaica are actually co leading this process on kick starting the new round of discussions on what does FFD mean, in the post pandemic period? And what are the FFD priorities for building back better. We have at UN Women become part of that conversation, because we want to leverage that for gender. So I think there's an opportunity here for the community to work together to build out those standards. And to get, as the governor was saying, more trust between the public and the private sectors, so that you don't have these variabilities. And you don't have these arbitrage opportunities that are created because you don't have a standardized approach.

Lindsay Wallace:            

Thank you. That standardization is incredibly important. My next questions to John, and really thinking about some of the challenges of blended finance. You spoke earlier, and I know we included it in the know, just the massive SDG funding gap that's in the trillions. So what are some of the challenges that are preventing blended finance from growing at the rate that's needed?

Joan Larrea:                    

Yeah, your report talked about three challenges; the need to deepen local financial markets, the need to increase people's knowledge of blended finance, so they can use it as a tool when it's appropriate. It's not always appropriate. And the need to be more transparent about how transactions have gone and how they've been put together. Some additional challenges. First of all, standardization and simplicity. We need to get to a concept of an asset class somehow, right? So blended finance, as long as every transaction has 42 different features that institutional investors have never seen and aren't familiar with, it's not going to hit scale. We need to be able to roll these transactions off an assembly line where everybody kind of... like an infrastructure where you have a PPA, and you flip to page 22, and you start negotiating there, because everybody knows that there's going to be an offtake agreement, and everybody knows there's going to be a construction contract.

We need to have that kind of standardization. Another issue, and this gets to the transparency issue that was cited in the report. Donors are nervous. Global Affairs, Canada, and all of its cousins, they get nervous about putting their money into contact with private sector capital. They don't want to subsidize people who already were doing investing. And there is a sort of a mysterious art of how do you know how much of your money and how deeply concessional you need to get in order to make the transaction go. And the more data we can put out to benchmark a transaction against the last 42 transactions that happen, the better off we'll be. So data, data, data, and anybody listening to this who has a trove of data on transactions that are blended that have closed, who would allow us to look with you at them, anonymize them, and publish some findings, please come talk to me.

Another problem generally, with the investment environment today in the emerging markets is COVID. We created a step function, massive increase in risk profile around the world for all investing. Now, the higher the risk, the higher the return you need on your capital to take the risk, and the less capital there is available, so the naturally a higher the pricing on that capital. So the cost of doing investing around the world just went up like a step function. That's a great opportunity for blended finance actually not a challenge. But it means that all investing in the markets that Convergence focuses on, it's going to get tougher. I think blended finance has a role to play there in closing that affordability or cost of capital gap. But it's going to take time. We've been talking a lot about blended finance has a really good role in the recovery. Not the emergency moment, but the recovery.

There are already blended finance transactions out there that people might want to go back and refer to, again, coming back to Anita's point, just to cite three of them that people can go read about. We wrote a case study on the IIX Women's Livelihood Bond in Bangladesh, a cool example of structuring for gender. Another one is the ASEAN Women's Empowerment Fund. You can look at WaterCredit Investment Fund 3, and synergy. There are some good examples of blended finance operating for women. I do want to say one thing. Again, I keep jumping all over points you haven't asked me about Lindsey, but they're incredibly important. Investing in women is not riskier than investing. If you're saying that what you're saying is, I want to have a blind spot in my investment strategy. I want to not understand this stuff, because I think somehow that's going to make me a better investor. It says if we go back to 1976, people say, "Oh environment, that's a cost."

It's a strength and an opportunity. And when you get to blended finance, if you can speak coherently about gender impacts and gender strategy, you're going to attract the kind of support from the donor side of the equation. You need to get your blended deal done. So I just want to park that with you before I pass the microphone back.

Lindsay Wallace:            

Thank you, Joan. Very helpful examples. And absolutely, I think we need to frame things not so much in terms of challenges, but really opportunities. Your point is well taken that it's not a separate thing, looking just at gender, it's got to be fully integrated. Just on the issue of potential risks, I'm going to turn now to the governor. And as you know, the Toronto Centre has published a note on blended finance from a regulatory and supervisory perspective. As governor of the central bank, do you see any challenges or issues in balancing your need to ensure financial sectors stability and growth in Rwanda with increasing investment through blended finance tools? Is there any trade off that you feel needs to be made in that regard?

John R.:                            

Yeah, thank you. Thank you, Lindsay. As you know, financial stability is one of the core mandates of the National Bank of Rwanda. And it is our role as supervisors and regulators of the financial sector to promote the use of innovative financial products that will foster sustainable and equitable economic growth. Can you hear me? It looks like you're struggling to hear me. Okay, good, good, good. Good, you can hear me. Blended finance is one of the products that we look at as innovative products that have come into the market that will support the development of our economies and equitable development, as we were saying. But you agree with me, of course, as providers of financial institutions, what will keep us awake at night is the stability and the soundness of the financial sector.

I think that remains key as the driving force behind what we do. Nevertheless, we are in a global economy that values disruption. So there's a lot of balancing act between allowing certain disruptions that will promote economic growth, and regulating predatory and dangerous practices that could threaten financial stability. So when it comes to dangerous practices, I would say one of the most highly protest global concerns from a supervisory perspective is money laundering, and money laundering, when it's linked to financing terrorism, that becomes even a double edged sword to the regulators, but even to other authorities. That's one concern that worries us.

Criminal organizations, [inaudible 00:53:04] becoming increasingly sophisticated in their capabilities to use well intentioned channels to hide more [inaudible 00:53:12] goals. They want to just extra minutes illegal wealth. So we must be vigilant to vet investors we engage in these projects thoroughly and assess the motives of the ultimate beneficiaries of this investment. It will be unwise to focus solely on the benefits of the investments we degenerate without examining the potential damage and risks behind any intentions actors in this sphere. So, I must admit that Rwanda, we're yet to have complex funded finance projects that pose real regulatory threats. As your paper indicated, there are challenges with Basel III requirements. We're already there, we're implementing Basel III. But when I look at the types of the kind of projects that we have that really are using mainly credit financing, it's mainly supported by government guarantees or government partner finances.

And within our regulatory regime, we attach zero risks to government guarantees. So we don't do any capital charge to any financial institution that is financing a project that is supported by government guarantee. Of course, it becomes a problem when we have NGOs and some other NGOs or royal regulated institutions. In that case, we might apply 100% haircut on the guarantees, and that would impact, of course, on the capital competition of the financial institution. But it's our belief that the best environment for investment is not a market devoid of regulations, but rather a disciplined market with clear standards that reflect current market conditions. Of course, we don't exist in a vacuum, so as conditions change, both local and global markets, we must collaborate with the international regulatory authorities to create pathways in a regulatory framework that recognize and facilitate blended financial transactions.

As I said earlier, Rwanda is a country that is always on the move. We do a lot of reforms, and we are very flexible, anything that we think we can accommodate without any big threat to the long term stability and growth of the country, we are always willing. Similar to us as regulators, we've carried out a lot of reforms. Of course, with regulation, financial regulation, there's all these international norms that we have to abide with. But still, we are able to be lenient and support innovation that will drive economic growth and development for our country. I would really say it is not yet a big challenge to us at our level of development, but the good thing is we work with our colleagues across the globe to devise ways of how we can handle good products that are coming to add value to the development of our economies. Thank you.

Lindsay Wallace:            

Thank you very much, Governor. I know that Anita has to leave us in two minutes. So I'm going to give her the opportunity to respond. I'm going to combine a couple of questions related to gender just to maybe clarify the perception. There is one question that came that may be interpreted what you said, that women who choose to stay at home should be able to stay at home. My understanding of what you were saying is not that if women want to go out to work, they should have the opportunity to do so. I'd just love you to comment on that, as well as a question that came in related to gender bonds. There is one sense that, do you think it's reasonable that bonds are gender oriented when we don't know the gender of the surviving members of a COVID family?

Anita Bhatia:                   

Thank you, Lindsey, for those questions. And on the first one, I would say, of course, we are firm believers in women's choices. By no means are we suggesting that women be forced to go back to work. But what we are just channeling is the anecdotal evidence and increasingly empirical evidence that we are getting about the degree to which women are unable to go back to work because of the care burden. The IMF, the World Bank, and UN's Department of Economic and Social Affairs came out just last week with a publication that is already showing the differential impacts on women's labor force participation compared to male labor force participation after the pandemic, and in this particular period. It's not a lot of data, it's about 11 months of data, but it's already looking like this is something that women are reluctantly in many parts of the world having to confront, that they simply cannot be at work in the same way because of the care burdens that they have.

So, of course, if women choose not to go back to work, nobody is saying that they should go back to work. But the public policy aim and the public policy issue is, how do you ensure that there are enough structure system social safety nets and incentives in place, so that for those women who do choose to go back to work that they are able to. And this of course means a range of interventions, including childcare credits, parental leave, flexible work, paid sick leave, employment insurance and a whole host of things. So just to clarify that, I think on the gender bonds issue, again, it is not really specific to the circumstances of a particular family. This is intended to have an impact on society at large because the ability of the government to borrow means that it is able to spend on things that are a priority for that government and for building back better and building back equal, because the opportunity in the recovery period is that there is a chance to do things differently than have been done before.

So I think in closing, what I would say is, first, I just want to say that I really do agree with the governor that Rwanda is a model in so many different ways, having been there and having worked on and held out, Rwanda is an example of innovation to so many other countries. There's so much to learn from the case of a country like Rwanda. And I think if we can, as a development community committed to sharing good practices, whether from Rwanda or elsewhere, I think we have an opportunity to reach the SDGs by 2030. But if we don't do that, then I think we will really have wasted the opportunity of the crisis. So I think we should just commit to saying, what are the specific policy actions that both public and private sector need to take in order to build back equal?

Lindsay Wallace:            

Thank you so much, Anita. And thank you so much for joining us. I know you have another thing that you need to go to. So a big, big thank you for-

Anita Bhatia:                   

No, thank you so much, Lindsay, and so great to be on the panel with the fellow panelists. And I hope to stay in touch with both you Joan and you, John. Thank you so much, Lindsay. And thank you again to the Toronto Centre. Bye, bye now.

Lindsay Wallace:            

Thank you. So we have a few more minutes. And then I know our other panelists have to leave as well. I just have a few more questions. First of all, a big thank you, John, for answering some of the questions that you did in the live chat. If people want to look at those, it's under the answered questions. But one question that I am going to turn to you, Joan with is, what's different about blended finance? The convergence of public and private funds has always been a key facilitator of economic growth throughout history. How is this really any different than historical models of private institutions working with state actors?

Joan Larrea:                    

Usually, people color within the lines. That is the public sector funding will be in one side of an equation and there will be a contract to a private sector side. That's how a lot of infrastructure got built. I the government promised to buy your power, you the private sector developer promised to build a decent power plant. That's the deal. It's separate, it's contractual. To mix money in a single financial structure puts people into a realm of discomfort. And that's what we are proposing here. We are proposing that government money, or donor money, or philanthropic money insert itself into the same financial transaction as private sector money and live with the fact that the partner from the private side is trying to earn a buck. I mean, they have a fiduciary duty to make a return for whoever's money they're dealing with. And those things can coexist, you do not need to have the same religion to be in the same transaction.

The party that is providing the public funds has to ask itself, "Am I getting further ahead with my taxpayer money or my philanthropic money? By putting my money here, do I get more units of impact than I would have if I just did a traditional grant toward the traditional channels?" The private sector side has to say, "Okay, now that this donor or this catalytic party is in the transaction with me, is enough risk shaved down? Is enough modulation of the return profile there that I'm going to take this bet, as opposed to going off to Wall Street and buying another share of IBM?" That's the difference here. We are saying that together, you can go farther than alone. These transactions do, as I said, create stresses and we need to speak to that and to admit it and to, again, the more data on how to do this right, that we can find out there to give people confidence that they are doing the right thing with their investors money or their taxpayers money, the better. But that's the distinction, is that money is coming into direct contact with each other.

Lindsay Wallace:            

Great, thank you, Joan. That's very helpful clarification. Turning to you, Governor, what advice would you give either donors such as Global Affairs or organizations such as Convergence to help tailor blended finance in a way to meet local development needs and priorities and really helping to develop local financial institutions in the local financial market? How can donors and other organizations engage more effectively to really help ensure there's sufficient local participation in blended finance transactions?

John R.:                            

Yeah, thank you. Thank you, Lindsay. I think as just side by Joan, one is, apart from the traditional financing by donor through government projects, I think today what we see, I give the example of the Access to Finance, Rwanda. I think this is one window that partners have worked with us to de risk investments or projects and bring in private sector. I gave the example of the switch where we had the partner helping us to create an environment where government can invest with the private sector, but in a manner that the products that will come out of this core investment will be affordable to the masses, and therefore be able to drive uptake of digital financial services. This is donor money that is used really to create a product that is now putting in private sector money and public money for the good of the masses and the bigger good of the development of the economy and Access to Finance in general.

Again, we see, another example I can use is, it's through again, Access to Finance one, because it has different donors coming in. But we've had donors coming in, working with the government of Rwanda to create an insurance product that would de risk agriculture, and therefore allow farmers to borrow money from financial institutions. So it just started like two years ago, where the government working with the donors, they give farmers a subsidy to buy. I think they pay four to 60% of the insurance cover for their farm products. And with this insurance cover, now farmers are able to attract financing from financial institutions, because the risk now is covered by this blended finance between the government and the donors. I think there are innovative products coming up from different donors to support what one would call really... because originally donors would come put money in through government and support farmers. And that is not sustainable. It's not going to have long term effect on the development of the agriculture sector.

But now what it's doing by de risking the agriculture sector and bringing farmers to work with financial institutions, I think that's going to have a long term development impact on the farmers and the country in general. Maybe I just want to use those two examples, and it's good we've seen it within our country, donors trying to be innovative on how they can work to unlock private financing that will support the development of the masses.

Joan Larrea:                    

May I add a little bit to what the governor just said, very briefly? We need to see more structures that pull in local investors and that create local currency-based transactions. I just wanted to mention that because so much is happening in dollar-based transactions. And we really do need to step up our game in pulling in local capital markets and deepening them through the use of blended finance and in turning things into the right currency so that we're not introducing new risks. So whatever any of you on the regulatory side can do to make room for the participation of institutional investors inside each country, please do it because it's pretty important that we get off this concept of all money coming from the outside.

Lindsay Wallace:            

That's an excellent point, Joan. And just following up on that, do you think that there's a role for organizations like the Bank for International Settlements to start engaging in blended finance, picking up on some of the points in the TC notes that the regulatory and supervisory community hasn't really been part of the blended finance conversation yet. There's an understanding that there are some regulatory or perceived regulatory barriers. Any comments on that? I'll go to you first and then see if the governor has anything to add.

Joan Larrea:                    

Yes, we have pulled institutional investors and there are certainly regulatory barriers that are preventing them from doing more and more with blended finance. And the commercial banks and insurance companies seem to find themselves most constrained. You're straying into realms that I'm not that familiar with when you talk about the International Bank for settlements. But yes, I think to the extent that donor supported instruments can be recognized as risk reduction devices and allow ratings agencies and regulatory agencies to allow participation of more parties on more flexible terms, we would be all for that. But I will turn it over to those who speak with more competency about the public policy side.

Lindsay Wallace:            

Governor, any comments on the role of the regulatory and supervisory community internationally and engaging in blended finance?

John R.:                            

To me, I think the papers like the one you produced and maybe those that have deep knowledge about blended finance, and how the regulatory regime would be affecting its impact on the intended impact on developmental countries. These are papers that are used around the BIS when we are discussing regulatory regimes and the Basil's of today. I think this will have an impact on influencing changes or easing where need be in terms of the regulatory requirements across the globe. But of course, unfortunately, we see the Western world being a bit too stringent with their regulatory regimes. You've had of the de risking regimes going on, most of these big financial institutions pulling out of emerging markets or low income countries, because of perceived risks. And because of the penalties applied by the regulators for any slight mistake here and there. But I think, again, as you said through BIS, these are engagements that we need to have to really remove any barriers that hinder good financial products to have positive impact on developmental countries.

I think that's what I can just say, it requires really concerted efforts. It requires discussions on the table where these regulatory regimes are set in Basel.

Lindsay Wallace:            

Great, thank you so much. I know that Joan has to jump off in one minute. And I'm not going to even begin to try to summarize everything we heard this morning. But just to say that, we recognize that blended finance is a critical tool. It's catalytic. We want more data. And so if anyone has interesting transactions, please, please share those with Convergence. Anita spoke to some really interesting innovative approaches to address the significant challenges for women and how to use blended finance as a tool and lots to learn from Rwanda and their innovative approaches to attracting investment, leveraging blended finance, as well as leveraging a number of tools. Let me just end this by saying a big thank you to my panelists. A big thank you to Global Affairs, Canada. A big thank you to the Toronto Centre. And thank you as well to all of our attendees. Merci beaucoup and [foreign language 01:13:49].

Joan Larrea:                    

Thank you all very much. And thank you, Governor, for joining us.

John R.:                            

Thank you. Thank you, everybody. Thanks, it was nice meeting you, Joan.

Lindsay Wallace:            

Thank you.