Blended Binds: How DFI's support programs stifle bank lending in Africa

Florian Léon ()
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Florian Léon: FERDI - Fondation pour les Etudes et Recherches sur le Développement International, CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne

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Abstract: Blended finance is central to development finance, catalyzing private capital alongside public resources to address global challenges in developing countries. Despite its growing importance, empirical evidence on its ability to leverage private lenders' credit supply remains limited. This paper addresses this gap by analyzing the lending behavior of supported banks in Africa. Using bank-level data and a comprehensive database of intermediated lending programs offered by major development finance institutions between 2010 and 2021, the study finds that supported banks reduce their lending activity post-program, with a significant 8% decline in loan growth. This phenomenon is attributed to the limited absorptive capacity of recipient banks, which leads them to prioritize new clients at the expense of existing borrowers. Additional analysis suggests that there is no spillover effect to ineligible banks. We also document that the lending activity of supported microfinance institutions remains unchanged.

Keywords: Blended finance; Development finance institutions; Private sector credit; Banks (search for similar items in EconPapers)
Date: 2025-07
Note: View the original document on HAL open archive server: https://hal.science/hal-05016568v1
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Published in World Development, 2025, 191, pp.106998. ⟨10.1016/j.worlddev.2025.106998⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05016568

DOI: 10.1016/j.worlddev.2025.106998

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