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Blended finance in the Western Balkans: where grants help, and where they distort

Concessional funding can close viability gaps in essential infrastructure. Poorly targeted, it can crowd out private capital or hide weak project fundamentals.

Vestronis Finance & Capital Markets·Analysis·7 min read

Blended finance combines grants or concessional funding with commercial capital. It is widely used in regional energy, water and transport, but it works best as a targeted tool rather than a default.

Where it adds value

Grants and viability-gap funding are most useful where a project has clear public benefit but revenues cannot yet support full commercial financing. Examples include water tariffs under social constraints, early-stage energy transition assets and climate resilience works.

Where it can distort

If concessional funding covers weak design, unrealistic demand or poor risk allocation, the underlying problem remains. It can also crowd out private lenders who would have financed a well-structured project on commercial terms.

Structuring principles

Each concessional layer needs a stated purpose, a measurable additionality case and clear conditions. Development partners increasingly expect transparent reporting on how the subsidy was sized and what it achieved.

This briefing is general commentary. It is not legal, financial or investment advice, and it is not an offer or solicitation.

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