Development bank guarantees Market Outlook 2026–2036: Growth Drivers, Key Companies, Strategic Developments & Adoption Forecast — A Meticulous Next™ Foresight Brief

This Meticulous Next™ brief examines blended finance, where development banks, donors and climate funds use guarantees, first-loss capital and concessional funding to bring private investors into climate projects in emerging markets. It tests how far blended finance becomes the standard route for climate investment in emerging markets by 2036, and what that means for development banks, commercial banks, investors, project sponsors and host governments.

Convergence reported in its State of Blended Finance 2026, released on 7 October 2026, that blended finance reached USD 25.8 billion across 181 transactions in 2025, compared with USD 25.7 billion in 2024 and USD 25 billion in 2023. Climate transactions reached USD 19.7 billion, and climate adaptation rose 133% from USD 2.4 billion to USD 5.6 billion. The conclusion is that total volume has held steady for three years while climate and adaptation take a larger share of it.

Private capital responded to guarantees. Private investment in blended finance transactions reached USD 11.2 billion in 2025, up 27% from USD 8.8 billion in 2024, and was mostly from commercial banks, while leverage rose to USD 5.33 per concessional dollar from USD 4.14. Convergence attributes the rise in private mobilisation to greater use of guarantees and other risk-sharing instruments by multilateral development banks and development finance institutions. The conclusion is that guarantees mobilise more private money per concessional dollar than direct funding, and development banks are shifting toward them.

The funding gap is large. The Independent High-Level Expert Group estimates that emerging markets and developing economies excluding China need USD 3.2 trillion a year by 2035, of which USD 1.3 trillion must come from outside these economies, about seven times current cross-border flows. The conclusion is that blended finance at USD 25.8 billion is a small part of the external need, and growth to 2036 depends on how far guarantees can be scaled.

The brief treats blended finance as an accelerating signal with a ten year horizon to 2036. It identifies which development banks, commercial banks and investors move first and what each means for guarantees, leverage and climate investment. It is a focused 113-page decision brief that presents an indicative trajectory rather than a segmented market model.

A guarantee covers part of the loss a lender or investor could suffer on a project in an emerging market, so private money can fund projects that carry country or currency risk. The development bank bears the first or the unlikely losses, and the commercial investor takes the rest. Convergence reports that leverage rose to USD 5.33 per concessional dollar in 2025. The conclusion is that a small amount of public risk capital can support several times that amount of private lending when structured as a guarantee.

Measured mobilisation is lower than the headline ratio. Joint reporting by the multilateral development banks and the OECD shows actual private co-mobilisation in lower-income countries of USD 0.20 to USD 0.50 per public dollar, against a long-cited ratio of 1 to 5. The conclusion is that results differ by income group, and the gap shows how much room there is to improve with better instruments and risk data.

The multilateral development banks are increasing climate finance. The joint report of July 2026 shows a record USD 163 billion of climate finance in 2025, up 19%, with USD 103 billion in low and middle income countries, up 21%, and USD 35 billion of private finance mobilised in those countries. The conclusion is that the largest suppliers of risk capital are growing it, and the guarantee share of that growth is the part that matters for private mobilisation.

Currency risk limits the reach. The cost of local-currency hedging can add 800 to 1,200 basis points a year to financing costs and limits commercial tenors to three to five years, while borrowing costs for local utilities and corporates can reach 12% to 18% or more when sovereign ratings fall. The conclusion is that local currency instruments and pooled platforms are needed to extend the benefit of guarantees to longer projects.

The limits are the cost of currency hedging, donor funding cuts and country risk. Overseas development assistance fell by nearly a quarter in 2025, and aid directed to blended finance is only 1% to 3% of annual aid. The brief tests each limit against the cost trajectory to 2036.

The development bank guarantees market, covering blended finance transactions in emerging and developing economies in which development banks, donors and climate funds provide guarantees, first-loss capital, concessional funding or technical assistance to mobilise private investment, measured by annual transaction volume, and excluding development bank direct lending, grants without private participation and domestic public finance, is valued at USD 24.0–32.0 billion in 2026 and is projected to reach USD 62.25–83.00 billion by 2036, at a CAGR of 10%.

The 2026 base rests on blended finance transactions in Latin America and the Caribbean, Sub-Saharan Africa, Asia, Eastern Europe and Central Asia, the Middle East and North Africa in which guarantees, first-loss capital and concessional funding mobilise private investment. Growth then follows the climate finance needs of emerging markets, the share of development bank funding provided as guarantees and the leverage achieved.

The forecast is sensitive to donor funding, development bank capital reforms and the cost of local currency funding.

The base case assumes development banks keep expanding guarantees and donor funding stays near current levels, bringing the inflection to about 2030 and a 2036 value near the middle of the range. An accelerated case assumes strong capital reforms and large pooled platforms, bringing the inflection to 2028 and lifting the 2036 value to the top of the range. A delayed case assumes deeper donor cuts and higher country risk, moving the inflection to 2033 and holding growth at the bottom of the range.

Growth drivers

• Climate finance goals and funding gaps.
• Development bank capital reforms.
• Private investor demand for emerging market assets.
• Growth of adaptation and energy projects.

Enablers

• Risk data and instrument design advances.
• Development bank guarantee platforms.
• Mobilisation and leverage evidence.
• Donor and climate fund programmes.

Restraints and barriers

• Cost of currency hedging.
• Donor funding cuts.
• Country risk and rule divergence.
• Differences in national rules and schemes.

The direction of blended finance is set by climate finance goals and funding gaps, development bank and donor investment, advances in risk data and instrument design, and the readiness of investors and host countries to use guarantees.

The key participants in development bank guarantees and blended finance include World Bank Group, Asian Development Bank, African Development Bank Group, Inter-American Development Bank, European Bank for Reconstruction and Development, European Investment Bank, Asian Infrastructure Investment Bank, New Development Bank, Islamic Development Bank, British International Investment plc, Agence Française de Développement, KfW, Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V., United States International Development Finance Corporation, Banco Nacional de Desenvolvimento Econômico e Social, BlackRock, Inc., Standard Chartered PLC, HSBC Holdings plc, Citigroup Inc., BNP Paribas SA, Allianz SE, Swiss Re Ltd, Temasek Holdings (Private) Limited, Brookfield Corporation, Macquarie Group Limited, Enel S.p.A., Ørsted A/S, Iberdrola, S.A., ACWA Power Company, Société Générale S.A., Deutsche Bank AG, ING Groep N.V., Banco Santander, S.A., Mizuho Financial Group, Inc., Mitsubishi UFJ Financial Group, Inc., Sumitomo Mitsui Financial Group, Inc., Norfund, Swedfund International AB, Finnfund, the Global Environment Facility, the Green Climate Fund, the Climate Investment Funds, Convergence, the Organisation for Economic Co-operation and Development, the International Energy Agency and the United Nations Framework Convention on Climate Change.

The brief profiles representative participants in each archetype and assesses which are positioned to lead as guarantee platforms and local currency instruments scale.

World Bank Group, European Investment Bank, Asian Development Bank and Inter-American Development Bank lead among multilateral development banks, British International Investment and FMO lead among bilateral development finance institutions, and Standard Chartered, HSBC and Citigroup lead among commercial banks in emerging markets. Competitive intensity is rising as commercial banks and investors compete for the guaranteed tranche of projects.

Where value migrates.

In 2026 value sits with development banks that provide guarantees and with commercial banks that lend against them. By 2030 it moves toward pooled platforms and local currency instruments that extend guaranteed funding to longer projects, and toward providers with data on country and currency risk. By 2036 it settles with blended finance as a standard route for climate investment in emerging markets, where guarantee capacity, local currency instruments and proven mobilisation carry the margin. Margins hold for providers that mobilise the most private capital per concessional dollar, and narrow for funding that relies on grants alone.

Blended finance of USD 25.8 billion in 2025, a 27% rise in private investment, record development bank climate finance and leverage of USD 5.33 per concessional dollar support growth, while currency hedging costs, donor funding cuts and country risk hold back the pace.

Deeper donor cuts, higher country risk and slow capital reforms could slow progress. The brief therefore tracks four indicators: blended finance volume and private share, leverage per concessional dollar, development bank guarantee issuance and local currency instruments.

Guarantees at major development banks first, then pooled platforms and local currency instruments, then standard route status is the expected order of change.