November 7, 2025 l The Manila Times
IN 2015, the global financing gap for developing countries to meet the Sustainable Development Goal (SDG) by 2030 was estimated at $2.5 trillion per year.
According to the Asian Development Bank, this shortfall increased by 40 percent during the pandemic to $3.5 trillion per year.
Today, the deficit continues to widen and now stands at around $4.3 trillion per year. This represents only about 1 percent of global wealth, and yet it’s still a struggle for the world to fill the gap. Amid an environment of competing priorities and shrinking aid, SDGs seem beyond reach by 2030.
However, against this challenge, blended finance has emerged as a solution.
In June, the United Nation’s 4th International Conference on Financing for Development identified the key role of blended finance — which means using public or philanthropic funds to aid in sustainable development.
It seems like a simple and logical concept. However, there are challenges for blended finance to be effective and reach its full potential in addressing the SDG problem. According to the Organization for Economic Cooperation and Development, many transactions remain too complex and narrowly defined to achieve systemic change. Other drawbacks are impact measurement, transparency, and local ownership.
To achieve systemic change, market-driven solutions must be applied. Just because the goal is developmental, the solution is not a dole-out.
Transactions should be designed to meet a market failure or gap. An example is the ASA Philippines, one of the country’s biggest microfinance institutions. Established to address the social and economic challenges of the poor, it was initially sustained by philanthropic funds from Assisi Development Foundation and the Ninoy and Cory Aquino Foundation.
It is now self-sustaining with some 2 million borrowers. ASA Philippines, with its innovative market-driven solutions, is the first in the country to issue a gender bond — which finances projects promoting women’s empowerment and gender equality.
Impact should be measurable, and this is where development partners (bi-laterals, multilaterals and NGOs) can bring their systematic framework. Where local ownership is a challenge, bringing the right complementing partners with the alignment of interest and clarity of roles is important.
For example, one of the most effective blended finance schemes in the country is the Philippine Water Revolving Fund (PWRF) which began in 2008. Commercial finance was successfully mobilized through development financing from the Official Development Assistance through Japan International Cooperation Agency, domestic public funds, and the Japan Bank for International Cooperation.
This financing was blended further with technical assistance from the World Bank and the United States Agency for International Development, standby credit lines, and credit guarantee schemes. This helped local water utilities access finance on a revolving basis for water supply and wastewater projects.
Over a six-year period, the PWRF mobilized over $234 million in loans to finance 21 water and sanitation projects.
Critical to implementing blended finance is deepening capital markets. In the Philippines, there is a need to further enhance the enabling environment, connecting demand to supply. Among the challenges on the demand side is lack of knowledge among small and medium enterprises (SMEs) on how to tap the capital markets.
According to the World Bank Findex Data, there is heavy reliance on family and friends for funding among Filipinos. There is little understanding of the need to have a strategic blend of debt and equity as enterprises grow.
There is also little understanding of other sources of funding like impact investors, philanthropic funds, and listing in the SME Exchange to access public funds.
On the supply side, the market is very liquid, but a number of financial institutions still stick to conservative approach to lending with land as collateral.
Despite these challenges, blended finance in the Philippines has proven to be a good approach to address funding gaps in SDG-critical sectors like water and sanitation, infrastructure, and energy.
Most recently, the Bangko Sentral ng Pilipinas led discussions on blended finance for climate adaptation. This was a very relevant conversation that brought together the public and private sector.
The Securities and Exchange Commission (SEC) has committed to deepen the country’s capital markets. Private institutions have been promoting sustainable finance through their own funds or through technical assistance.
***The views expressed herein are her own and do not necessarily reflect the opinion of Water.org as well as FINEX. For comments, email gsantosifc@gmail.com. Photo is from Pinterest.