As the expression itself says, blended finance or blended capital is a combination of capitals, more specifically the private investment with other sources of funding – such as investment funds. It is used in many cases by crowdlending platforms – which have been recognized as one of the best investment channels in the financial ecosystem created by the New Economy to leverage businesses with social and environmental impact.
Features of Blended Finance
In a more refined definition, the blended finance is a structuring approach that brings together the interests of diverse organizations that range from invest together to achieve your goals. According to the Convergence Finance handbook – a global network of research and projects blended finance focused on developing countries -, the combined financing has basic characteristics that mark its transactions:
- It is an operation that contributes to the fulfillment of the SDGs from the UN (even though not every participant has a development objective, but rather a capital remuneration objective);
- Different investors will have different return expectations (with the exception of philanthropic capital which does not seek returns), but the investment that uses blended finance must present rates compatible with the market. This means that it is an investment capable of correctly remunerating both the socio-environmental enterprise and the impact investor;
- 3. It is aligned with public and/or philanthropic investments that are resource catalysts. The participation of these parties improves the risk/return profile of the transaction and increases the attraction of the private sector.
Although the operation of blended finance has been prominent in recent years, it has been encouraged for some time and already offers consolidated results on its growth in terms of the number of transactions. Until this year of 2024, operations under a management approach blended finance were, exceeded the order of US$ 231 billion in capital for sustainable development in developing countries.
In fact, it was at the Third International Conference on Financing for Development, held by the Organization in 2015, that the concept of blended finance was recognized as an alternative for capitalizing and financing projects with the aim of sustainable development in accordance with the UN SDGs.
The Organization for Economic Cooperation and Development (OECD) stated in its document “Blended Finance: mobilizing resources for sustainable development and climate action in developing countries” that the combined financing can help bridge the US$1.5 trillion annual gap that is now needed to make developing countries meet the UN SDG targets and the planet escape climate collapse.
The blended finance can be carried out by different actors, such as philanthropists, government, development organizations and also companies. For the latter audience, it can be a great strategy to align with the UN Sustainable Development Goals..
Blended Finance in practice
THE Sitawi makes use of this model to develop biodiversity and face climate challenges that make the impact investing more attractive for both the impact investor and the impact entrepreneur. Since 2019, Crowdlending Platform for Positive Impact from the Sitawi has been supporting organizations with high potential for generating positive socio-environmental impact through a cheaper capital, abundant and patient, which enables the development and expansion of its operations.
Learn how Sitawi has been using the blended finance to promote more capital empathetic and accessible for businesses with a positive socio-environmental impact, while promoting real returns to investors. Read the study Socio-environmental transformation with real returns.
