In order to close the financing gap for achieving the Sustainable development Goals (SDGs), donor countries need to make more use of innovative mechanisms and instruments for development finance. Alongside official capital, these should also increasingly include the mobilisation of private resources.
One of the main factors that discourage private investors from making investments in developing countries is that they consider such investments to be too risky. Although any investment entails financial risks, they are often seen as prohibitively high in emerging and developing countries.
At the same time, many of today's political and economic challenges are of a global nature. These challenges cannot be addressed through 'stand-alone solutions', but only through cooperation across national borders. For instance, this applies to expanding sustainable energy supply, or improving capital market access.
In light of these challenges, structured funds are used in development cooperation to mobilise private capital across countries in support of development funding goals. In the cooperation with regions, structured funds are used in various regional and sectoral contexts, and are seen as offering major potential for financing the SDGs.
An important feature of structured funds is that official donors cover losses up to a certain amount, thus reducing the risks for private investors. This is designed to encourage private investors to invest more in projects that are relevant to development. Most structured funds also offer Technical Assistance (TA) in order to mitigate capacity-related risks and safeguard environmental, social and governance standards.