Blended finance uses catalytic capital from public or philanthropic sources to increase private sector investment in emerging markets for global development impact. With support from public investors (such as first-loss capital or guarantees), private investors benefit from lower risk and/or enhanced returns on their investments in emerging and frontier markets. Meanwhile, public investors can magnify the impact of their funding – initial estimates suggest that public capital used in these transactions can attract up to 10x in private investment.
There is an estimated $2.5 trillion gap in funding per year for the Sustainable Development Goals (SDGs). As a result, governments, donor agencies, and philanthropists are looking for more catalytic ways to deploy capital to close this gap. At the same time, private investors are increasingly seeking new investment opportunities in high-growth emerging and frontier markets. At the intersection of these two trends is the blended finance opportunity. Blended finance transactions in emerging and frontier markets have the potential to unlock billions of private sector dollars for global development.
Convergence is an independent entity, registered as a non-profit corporation in Ontario, Canada. Convergence’s funders include the Government of Canada, Citi Foundation, and Ford Foundation. Conceived under the World Economic Forum and OECD-DAC’s ReDesigning Development Finance initiative, Convergence was designed and launched by the Global Development Incubator and Dalberg Global Development Advisors.
Convergence aims to serve blended finance investors and practitioners, as well as those looking to enter this space. Anyone can access Convergence’s Design Funding and Resources, but the Deal and Investor Databases (which constitute Convergence’s Investment Network) are limited to eligible institutions.
Private institutions must be a legally registered institution in their country of domicile; be registered as an investor, investment advisor, or local country equivalent with the securities regulator in their country of domicile; have been in operation for a minimum of 2 years; and have a referral to join.
Large foundations and public institutions such as aid agencies and development finance institutions are not required to receive accreditation from local jurisdictions and will also be allowed on the platform.
Institutions that do not meet these criteria may occasionally be approved on an exceptional basis by Convergence’s leadership.
Registered institutions can post blended finance investment opportunities on the deal database that are located in an emerging or frontier market(s), have an overall deal size of at least $5 million USD, and can demonstrate a commitment from at least one anchor investor. This commitment could be a signed Letter of Intent, a verbal commitment, a completed investment, or some other form of commitment. This latter requirement helps to ensure the quality of deals posted.
Live deals will not be added to Convergence until early 2017, pending regulatory approvals in relevant jurisdictions.
The Investment Network is comprised of Investor and Deal Databases. Investors have access to a wide range of resources to help them structure and execute blended finance transactions. Collaboration tools include a messaging function and data rooms where deal providers can create checklists of relevant activities and share documents securely. Registered investors also have access to data on over 150 historical blended finance transactions, as well as the resources available to all users: reports, primers, and case studies; a directory of relevant service providers; and access to offline trainings and workshops.
Convergence’s Design Funding provides feasibility study or proof of concept funding for practitioners to design blended finance vehicles that aim to attract private capital to development at scale.
Currently, interested practitioners can apply for funding under the Open Window for any blended finance product that ties capital to delivered results that achieve development outcomes. Applications can be for products in any emerging or froniter market, and for any sectors relating to the Sustainable Development Goals.
A feasibility study could include activities such as: validating the development finance need, and the applicability and parameters of the blended finance product; building the financial model; identifying potential partners (both funders and implementing stakeholders) and soliciting feedback on the blended finance product.
Proof of concept could include activities such as: technical design and structuring of the blended finance product; developing the products impact framework and implementation strategy; validating the product with investors and developing the investor strategy.
Design activity costs must contribute towards, and be essential for, the design activities proposed. Eligible costs include: employee remuneration, subcontractor fees, travel costs, and other costs with appropriate justification. Please see here for eligible design activity costs.
Individual organizations and consortiums of organizations are eligible to apply for funding. All organizations must be able to provide proof of incorporation and audited financial statements for the previous fiscal year. For proof of concept funding, single organization applicants must be an accredited investor or investment advisory, or be able to demonstrate extensive financial structuring expertise. Consortium applicants must include at least one organization that meets this criteria, but they need not be the lead applicant. This requirement is intended to ensure there is sufficient financial structuring expertise for instruments to ultimately be appropriate for private investors.
In addition to funding, Convergence and a third party Learning Partner work closely with grantees to support the design process, as well as codify relevant learnings into succinct knowledge briefs to be hosted on Convergence’s Knowledge Library. Examples of relevant learnings include: key challenges and learnings from the design process, outcomes of the design process, and sanitized product documentation where applicable from proof of concept grants.
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Convergence is the only platform focused exclusively on blended finance, filling the gap between impact investing and purely commercial platforms. Moreover, the platform is sector and region-agnostic and provides a range of services and offerings to support blended finance deals at different stages of maturity. Convergence plays a complementary role to existing platforms, but tackles challenges not fully addressed by others such as high design costs, lack of knowledge and data, and high search costs.
Convergence seeks to aggregate, consolidate, and standardize blended finance activity, providing a robust platform that underpins the blended finance ecosystem.
Convergence aggregates the deal pipeline of other initiatives that have capabilities Convergence does not, such as extensive local expertise on sector-specific deals or structuring support. Convergence also serves as a home for knowledge and tools to raise awareness and understanding of blended finance.