Blended finance is defined as “the strategic use of development finance and philanthropic money to mobilize private capital to emerging and frontier markets.” The English term blended finance is also translated into Spanish as mixed financing or the Anglicism blending is used directly.[2]​ Blended financing offers advantages to both investors and recipient countries.[3]​[4]​ It gives the possibilities of increasing commercial financing for developing countries and channeling this financing towards investments with an impact on development. This financing is therefore designed to support progress towards the Sustainable Development Goals (SDGs) set by the United Nations. Meeting the SDGs will annually require additional funding of US$2.5 trillion ($) per year. In another vein, carrying out the Paris Agreement against climate change will require additional annual financing of $13.5 trillion.[5]​[6]​ The concept of blended finance was first recognized as a solution to the lack of financing in the document in which the Third International Conference on Financing for Development (July 2015) presented its results.[7]​.

Recent research commissioned by the World Economic Forum identified 74 pooled funds and financial instruments totaling $25.4 billion in pooled financing assets, impacting the lives of 177 million people, demonstrating the enormous potential of this financing to remedy the financing gap required to achieve the ambitious Sustainable Development Goals.[8]​.

The concept has recently gained popularity within the world of development finance.[9]​.

The expression "blended financing" implies the mixing of public money and private money through a common investment agreement or scheme, with each party using its knowledge in a complementary way. The concept and model were developed within the World Economic Forum's development finance redesign initiative.[10] Public money typically comes from multilateral development banks or national development aid agencies.

The public sector (such as official development assistance, ODA) does not have the capacity to provide all the money necessary to achieve the Sustainable Development Goals (SDGs). Therefore private investment is key to increasing the reach and impact of conventional development finance and philanthropists. Only a small percentage of the global assets of banks, pension funds, insurers and multinationals are directed to sectors and regions that advance sustainable development. The current challenge for the SDG era is how to channel more private money into these sectors and regions. Especially in a context where public finances are under increasing pressure, while private flows to developing countries are increasing significantly. Blended finance is designed to stimulate vast inflows of private capital to support these development outcomes.