Among the new concepts that invade the daily lives of investors who decide to enter the impact business market, one must certainly be one of the first to be known: blended finance or combined finance.
As the expression itself says, blended finance or blended capital is a combination of capital, more specifically private investment with other sources of funding – such as investment funds -. Is it used in many cases by collective loan platforms? that have been recognized as one of the best investment channels in the financial ecosystem created by Nova Economia to leverage businesses with social and environmental impact.
Incentive and growth
In a more accurate definition, blended finance is a structuring approach that brings together the interests of different organizations that will invest together to achieve their goals. According to the Convergence Finance booklet ? global research network and blended finance projects focused on developing countries - blended finance has basic characteristics that mark its transactions:
1. It is an operation that contributes to the fulfillment of the UN SDGs (even if not every participant has a development objective, but capital remuneration);
2. Different investors will have different return expectations (with the exception of philanthropic capital), 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 attractiveness of the private sector.
Although the blended finance operation has been highlighted in recent years, it has been stimulated for some time and already offers consolidated results on its growth in terms of the number of transactions. Up to 2018, operations under a blended finance management approach were, surpassed the order of US$ 130 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 sustainable development objectives in accordance with the UN SDGs.
The Organization for Economic Cooperation and Development (OECD) stated, for example, in its document ?Blended Finance: mobilizing resources for sustainable development and climate action in developing countries? that blended finance can help leverage the US$ 2.5 trillion annual gap that is now needed to get developing countries to meet the UN SDG targets and the planet to escape climate meltdown.
Therefore, your capital can help boost businesses aligned with this agenda through approaches such as blended finance.
THE Sitawi makes use of this model to develop financial mechanisms that make impact investing more attractive for both impact investors and impact entrepreneurs. Since 2019, the Collective Loan Platform Sitawi has been supporting organizations with a high potential for generating a positive socio-environmental impact through cheaper, more abundant and patient capital, which enables the development and expansion of its operations.