Despite its potential, blended finance faces challenges:

• Complexity: Structuring blended finance deals can be intricate, requiring significant legal, financial, and development expertise.

• High Transaction Costs: The bespoke nature of deals can lead to high upfront costs relative to the size of some projects.

• "Crowding Out" vs. "Crowding In": A key concern is ensuring that concessional capital genuinely "crowds in" (mobilizes) additional private capital, rather than simply "crowding out" (replacing) commercial funding that would have flowed anyway. Adherence to "additionality" and "minimal concessionality" principles is crucial.

• Transparency and Reporting: Ensuring transparency on financial and impact outcomes can be challenging due to the complexity of structures and the diverse objectives of investors.

• Risk of Subsidy Dependency: If not structured carefully, projects might become overly reliant on concessional funding, hindering their long-term commercial sustainability.

• Limited Deal Flow: A common complaint from private investors is the lack of a sufficient pipeline of "investment-ready" or "bankable" projects in emerging markets.