Blended Finance or Just Blended Language?

How global development tools meant to attract private capital may be driving it away

In development circles, it's almost gospel: the future lies in leveraging private capital for development goals. The idea has regained momentum recently as public development budgets come under pressure. Donor commitments are declining, from Trump’s dismantling of USAID to the UK’s reduction in development funding. But what if the very tools we’ve created to make development finance-friendly—like the Sustainable Development Goals (SDGs) and OECD DAC frameworks—are the same tools quietly pushing finance away?

Dar es Salaam

Based on my research on blended finance and impact investments in Tanzania, I’ve seen how programs designed to attract investors end up reinforcing the very aid practices they were to move beyond. What begins as an effort to blend finance with aid ends up as aid, and this isn’t due to a lack of effort or capability by development actors on the ground. Take the donor-funded startup accelerators I observed in Tanzania. These programs borrow the purpose, look, and language of venture capital—offering crucial seed funding, in addition to mentorship, and capacity building to Tanzanian entrepreneurs. But they are not investors nor are they doing investments. On the contrary, these programs are fully grant-funded, run by development organizations, and accountable not to financial markets, but to state donors.

This accountability to donors is key. While framed as vehicles to attract blended finance, these programs undergo a quiet transformation: they become traditional development interventions.

The irony? The very tools introduced to bring in finance are the ones that ultimately keep it out.

The Paradox

To align with global development policies and frameworks, these programs must adopt tools like the SDGs, Theory of Change models, Logical Framework Approach, and OECD evaluation criteria to design, measure, and report results. This shapes not only what counts as impact, but how organizations must operate. Even development organizations committed to supporting high-potential startups must prioritize donor-aligned metrics to stay eligible for funding.

These tools are powerful. They are powerful governance tools, and once put to work, the development organizations must align the programs with the global priorities and ensure accountability to state donors.

The centre of gravity shifts.

For example, during startup selection, instead of asking whether a venture can scale, build traction, or attract follow-on capital, the key questions become: “How well does it contribute to SDG 3.7?” or “Does it fit into our Theory of Change?” While economic viability is still a factor, it is overshadowed once donor reporting begins. What gets evaluated is not business itself, or its performance but how the program performs in terms of contributing to development policies, in particular the 2030 Agenda. Success, in turn, is defined out of OECD’s criteria for aid effectiveness.

And here’s the problem: private investors back ventures with a clear potential for return of investments. When “impact” is defined through donor-driven tools, the “investment” is measured out of development priorities- not those of finance. The program becomes governed by development institutions, not investors. Finance doesn’t just stay away because it can’t recognize this terrain—it stays away because it was never truly given access to it. 

Recent data underscores this disconnect. less than 8% of blended finance partnerships take place in low-income countries, and the number is falling (Bernards 2022). Despite all the talk of mobilizing capital, very little of it actually reaches the places it's most needed.

The Power of Development Tools

Development tools like the SDGs and DAC criteria are what I call development devices: small, technical instruments that carry the authority of global agreements. But they do more than valuate participation in programs of measure its progress – they also perform governance.

They shape what counts as success, who gets funded, and how value is decided. More importantly remain the processes of valuation within the development circuit itself—linking donor priorities, program objectives and reporting practices in a closed loop that bypasses both market logic and local entrepreneurial realities.

In Tanzania, most entrepreneurs I spoke with had never heard of the SDGs. These global goals were not part of the local vocabulary, nor strongly embedded in national policy. Entrepreneurs were busy solving real problems—getting farmers paid faster, delivering reproductive health services, creating jobs. But to access support, they had to translate their work into SDG-speak—because that’s what the forms, the reports, and the funders demanded.

The result? Policies and tools originally designed to attract private capital end up reasserting donor control—displacing both local needs and investor logic. Startups become peripheral. What takes center stage is not venture viability, but program compliance with global frameworks. These devices don’t just measure impact—they govern it.

Do We Really Want Private Finance—or Just the Language of It?

If we’re serious about blended finance, we need to move beyond questions about investor readiness, and turn to donor governance. Can we build accountability mechanisms that speak to investors, local actors, and state donors alike? Can development policies or valuation frameworks be co-designed, rather than imposed?

Because right now, in trying to align with global goals, development actors seem to be reinforcing the very systems private finance was meant to disrupt. And in doing so, we risk building the appearance of innovation—while quietly reproducing the same old aid interventions, just in more technocratic form