Blended finance in West Africa: lessons from five transactions

There is more institutional capital looking for yield than there are bankable projects to absorb it. That sentence describes the West African infrastructure gap more accurately than any headline about a “financing shortfall.” The money exists. What is usually missing is a structure that allocates risk so that commercial investors can participate at a price that works.

That is the job of blended finance: using a measured amount of concessional or public capital to change the risk profile of a transaction enough that private capital comes in behind it. Done well, a small amount of patient money mobilises a much larger amount of commercial money. Done badly, public money simply subsidises a deal that would have happened anyway, or props up one that should not happen at all.

The difference is in the structuring, and structuring is best learned from real deals. Five West African transactions, each using a different mechanism, carry most of the lessons that matter.

1. InfraCredit Nigeria: solve the currency problem at home

InfraCredit, established in 2017 by the Private Infrastructure Development Group together with the Nigeria Sovereign Investment Authority, is a local-currency guarantee company. It provides naira-denominated guarantees that raise the credit quality of infrastructure bonds, which lets Nigerian pension funds and insurers lend long-term, local-currency money to infrastructure they would otherwise never touch. Its guarantee for Viathan’s bond helped bring the first ten-year corporate infrastructure bond to the Nigerian market.

The lesson: the most expensive risk in African infrastructure is often currency, not credit. A project earning naira and servicing dollar debt is one devaluation away from distress. InfraCredit’s model attacks that directly by mobilising domestic savings in domestic currency, with a thin layer of concessional capital standing behind the guarantee. The deepest pool of patient capital in many countries is already onshore, in pension funds; the constraint is the credit enhancement that lets it be deployed.

2. Scaling Solar, Senegal: standardise, then compete

Senegal’s solar plants under the IFC-led Scaling Solar programme reached some of the lowest electricity tariffs recorded in Sub-Saharan Africa, with two of the plants priced below four euro cents per kilowatt hour. They did it not through a clever one-off structure but through standardisation: a pre-packaged template of bankable contracts, a competitive tender, and a ready-made financing and guarantee package, deployed by an experienced consortium with the Senegalese sovereign fund as a partner.

The lesson: competition discovers a price that negotiation never will, but only when the framework is standardised enough for bidders to compete on cost rather than on lawyering. The expensive, slow part of a deal is the first one. The value of a programme like Scaling Solar is that it makes the second, third, and fourth transactions fast and cheap by reusing the structure. For governments, the takeaway is to invest in a replicable framework rather than negotiating each project from scratch.

3. Taiba N’Diaye wind, Senegal: insure the risk you cannot remove

Taiba N’Diaye, West Africa’s largest wind farm at 158 MW, reached financial close in 2018 and attracted over US$400 million. The structure leaned heavily on risk mitigation from development finance institutions: large-scale debt and reinsurance from the US development finance institution, an export-credit guarantee from Denmark’s EKF, and political-risk insurance from the World Bank’s MIGA. That layer of guarantees and insurance is what made commercial lenders comfortable financing a first-of-its-kind asset in the market.

The lesson: some risks cannot be designed out of a frontier-market project; they can only be insured or guaranteed. Political-risk insurance and partial guarantees are among the most efficient uses of public balance sheets, because they mobilise multiples of private capital without spending cash up front unless something goes wrong. For a pioneering project, the guarantee is often the difference between financial close and a stalled pipeline.

4. Nigeria Electrification Project: pay for results, not promises

The Nigeria Electrification Project, run by the Rural Electrification Agency with World Bank support, took a different route to mobilising the private sector. Rather than building assets itself, it offered private developers performance-based and output-based grants: minimum-subsidy tenders for mini-grids and an output-based fund for solar home systems, with money disbursed only once a developer had actually connected customers. By 2023 the programme reported reaching several million Nigerians through mini-grids and standalone solar systems.

The lesson: subsidy works best as a catalyst tied to delivery, not as a payment for promises. Output-based design shifts performance risk to the developers best placed to manage it and protects public money from being spent on assets that never operate. It also crowds in private capital and capability at the last mile, where governments are weakest. The discipline is to pay for the outcome, electricity actually delivered, rather than for the input.

5. Room2Run: move risk off the balance sheet to free up more

Room2Run, priced in 2018 by the African Development Bank with Mariner Investment Group and Africa50, was the first synthetic securitisation between a multilateral development bank and private investors. It transferred the mezzanine credit risk on a roughly US$1 billion portfolio of the Bank’s existing private-sector loans to commercial investors, freeing capital the Bank committed to redeploy into renewable energy. The portfolio spanned the continent, including West African exposure, rather than a single country, which is why it belongs in this list as a portfolio-level innovation rather than a project deal.

The lesson: risk transfer at the portfolio level is how you mobilise institutional investors at scale. Instead of de-risking one project at a time, a securitisation lets pension funds and specialist investors take a slice of a diversified pool, while the originator recycles scarce capital into new lending. For a region where the constraint is the velocity as much as the volume of development capital, recycling balance sheets is as important as raising new funds.

What the five have in common

Read together, the transactions point to a consistent set of principles for anyone, government, investor, or board, putting blended structures together in the region.

Concessional capital should be catalytic and time-bound. In every successful case, the public or concessional money is the lever, not the load. It is there to change behaviour and crowd in private capital, then step back. Concessional money that becomes a permanent subsidy is a sign the structure has failed, because it means the market never formed.

Local currency is a strategic asset, not a detail. InfraCredit exists because currency risk, left unmanaged, kills otherwise sound projects. The more a structure can fund in the currency the project earns, and mobilise the domestic institutional capital that holds that currency, the more resilient it is.

Guarantees and insurance are the most efficient public tools. Taiba N’Diaye and Scaling Solar both lean on guarantees and risk cover. These instruments mobilise far more private capital per public dollar than cash grants, because they are only drawn if a risk actually materialises. Used well, they are leverage; used carelessly, they are hidden liabilities, which is why they belong with disciplined public balance-sheet management.

Pay for delivery. The Nigeria Electrification Project shows the value of tying public money to results. Output-based structures protect scarce funds and push risk to the parties best able to manage it.

The binding constraint is preparation. None of these deals were limited by a shortage of global capital. They were enabled by structuring: bankable contracts, credit enhancement, risk cover, and competent counterparties. The scarce resource in West African infrastructure is well-prepared, investment-ready transactions. That is where early effort and early money earn the highest return.

Telling good blended finance from bad

Because blended finance uses public or concessional money, it carries a permanent risk that the subsidy is wasted, and the discipline of telling good structures from bad comes down to a few tests.

The first is additionality. Would the transaction have happened anyway, on commercial terms? If yes, the concessional money added nothing and simply lowered the cost for investors who did not need the help. Good blended finance is reserved for deals that genuinely cannot close without it.

The second is crowding in, not crowding out. The point of the public layer is to bring private capital that would otherwise stay away. If public money is occupying space that private money was willing to take, it is doing harm, not good, by teaching the market to wait for a subsidy.

The third is minimum concessionality. The right amount of soft money is the least that gets the deal done. Over-subsidising a transaction is not generosity; it is a transfer from the public to private investors and a distortion that makes the next, unsubsidised deal harder to price.

The fourth is an exit. Catalytic capital should have a path to stepping back as the market matures, so that the structure is training the market rather than permanently propping it up. A blended structure with no plausible end state is a subsidy wearing a more sophisticated label.

The fifth is transparency. Investor confidence, and public legitimacy, both depend on the terms being visible. Opaque blended deals invite the suspicion that the public is carrying risk while private parties take the return, which is corrosive whether or not it is true.

What it means depending on where you sit

For governments, the implication is to spend scarce capacity on building replicable, bankable frameworks and on the guarantee and local-currency institutions that mobilise the most private capital per public naira, rather than negotiating each deal from a standing start. For investors and lenders, the opportunity is to treat well-structured blended transactions as a route into markets that look closed from the outside, while reading the structure carefully enough to know which risks they are actually taking. For project sponsors and boards, the lesson is that the work which determines whether capital shows up happens long before the financing conversation: in preparation, contracts, and the credibility of the counterparties. The capital follows the structure, not the other way around.

Blended finance is not, in the end, a financing product. It is plumbing. It is the set of arrangements that let public intent and private capital flow in the same direction long enough to build something that lasts. The transactions that work are the ones designed with that modest ambition, and the discipline to let the concessional money step back once the commercial money has learned the route.

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Sources: OECD case study: InfraCredit Nigeria · IFC Scaling Solar, Senegal · MIGA on the Taiba N’Diaye wind farm · Nigeria Electrification Project (REA) · AfDB Room2Run securitisation

This article is general guidance, not investment advice.