What is blended finance?

The blended finance — or mixed financing — it is one of the most sophisticated and strategic models in the ecosystem of impact investing. By combining sources of capital with distinct profiles (public, private, and philanthropic), this model makes viable projects that, without this financial architecture, would not be able to attract conventional investors.

In Brazil and around the world, the blended finance It has become a central tool for mobilizing resources on a large scale towards... Sustainable Development Goals (SDGs), especially in contexts of high socio-environmental complexity, such as the Amazonian bioeconomy, climate finance, and the strengthening of impact businesses in vulnerable territories.

What is blended finance?

Translated as “mixed financing” or “hybrid financing”, the blended finance is a business model that combines different sources of financial resources, such as public, private and/or philanthropic. Its objective is to finance economic development through financial solutions in line with the Agenda 2030. 

This strategic approach uses catalytic capital (philanthropic or development) to mitigate risks and attract commercial investors (private capital). In this way, agents with different objectives can invest side by side and, at the same time, achieve their own goals, whether they are financial return, socioenvironmental impact or a combination of both.

Benefits of blended finance 

The blended finance offers a series of benefits, making it an attractive strategy for several sectors: 

• Versatility: can be applied in areas such as health, education, infrastructure and energy, in addition to benefiting companies in other sectors seeking sustainable practices; 

• Risk reduction: the combination of different sources of capital dilutes risks, making projects less vulnerable and more attractive to investors; 

• Capital leverage: the model promotes investment diversification, accelerating capital flows and maximizing gains in scale; 

• Alignment with ESG and impact: enables initiatives aligned with best practices ESG and impactful, attracting consumers and investors who value sustainability and social responsibility.

Blended finance in Impact Investing 

The mixed financing is a strategy widely used in the context of impact investing to leverage capital into projects that might otherwise be considered risky or financially unviable for conventional investors. 

With the use of concessional capital — public or philanthropic resources that accept greater risks or lower returns — this approach attracts private capital, promoting innovation and growth in businesses that prioritize socio-environmental impact.

Challenges of blended finance 

Despite its advantages, the blended finance presents challenges that need to be overcome to ensure efficiency and impact: 

1. Complexity of structuresAligning expectations, deadlines, metrics, and instruments from different types of funders is a technical and political task that demands experience and credibility with all the actors involved; 

2. Impact measurementAssessing and reporting the true impact of projects funded by blended structures requires robust methodologies and monitoring systems that go beyond traditional financial indicators.; 

3. TransparencyStructures with multiple funders and layers of capital need clear accountability mechanisms to ensure that resources are being used efficiently and with integrity. 

To overcome these challenges, the actions of intermediary organizations that enable these transactions is crucial. They align objectives, define participants and facilitate the formalization of agreements, ensuring the effectiveness of the model. 

Blended Finance in practice 

THE Sitawi Finanças do Bem is a pioneering organization in Brazil that acts as a strategic intermediary in the structuring of innovative financial solutions to drive positive impact. 

Through the blended finance, we enable organizations and companies encourage investment in businesses that promote positive socio-environmental impact, making them attractive to investors who wish to invest from R$ 10. 

Success story 

At the end of 2023, Sitawi held its 14th Round of Investments in Impact Investing, with an exclusive focus on organizations in the Amazon. The round It considered five deals and used a classic blended finance structure.in partnership with Valley Fund, R$ 1 of concessional capital was contributed at zero interest for each R$ 1 raised by any of the businesses on the platform.

The practical result was twofold: the cost of capital for businesses was significantly reduced—making financing more accessible and patient—without compromising the rate of return for platform investors, which remained 2 percentage points above the Selic rate. This is the power of well-structured catalytic capital: distributing benefits asymmetrically among participants, according to their objectives.

How can your organization use blended finance to amplify impact?

For Large companies, foundations, funding agencies, and development funds that wish to expand the reach of their social and environmental impact strategies., Blended finance offers powerful leverage, but it requires proper technical structuring to function effectively.

Sitawi works with organizations that want to go beyond direct donations or conventional investments: We structure financial mechanisms that combine philanthropic, concessional, and private capital to drive impact businesses at scale, with traceability, governance, and verifiable results measurement..

If your organization has capital to leverage and wants to transform it into a financing structure that multiplies impact and attracts other investors... Contact Sitawi and discover how we can build this mechanism together.

Frequently asked questions about blended finance