The State of Blended Finance 2020

The time for blended finance is now.

“Since the first publication, we have written this report in-house, as a team, with the goal of using our unique position at the core of a growing ecosystem to reflect objectively on the field to help investors and funders placing their capital in support of the Sustainable Development Goals.”

JOAN M. LARREA, CHIEF EXECUTIVE OFFICER, CONVERGENCE

Read full letter from CEO

Convergence presents the State of Blended Finance 2020 with key findings from:

~

financial
commitments

Nearly

blended finance
transactions

USD ~ B

in financing to date
commitments

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Overall Market

The blended finance market has experienced a consistent number of transactions year on year, with 45 launched in 2019 (collected so far). Annual financing has remained consistent, averaging USD 11 billion per year over the course of 2014-2019; though, this value has varied because of several large-scale, billion-dollar initiatives.

Overall blended finance market
(2010-2020)
IN USD billions

Total Transaction Count (Closed)
Transactions Currently Fundraising
Aggregate Financing
Outliers

Overall blended finance market
(2010-2020)

IN USD billions

The State of Blended Finance is Convergence’s annual report on blended finance trends, opportunities, and challenges.

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Deal Sizes and Types

Funds (e.g., equity funds, debt funds, and funds-of-funds) have consistently accounted for the largest share of blended finance transactions (37% of transactions over 2017-2019 and 43% historically), but vehicles are diversifying. In 2017-2019, we saw a notable uptick in bonds and notes, which account for 16% of transactions in 2017-2019; 65% of the bonds and notes captured in Convergence’s database were launched in the last 3 years.

Proportion of blended
finance vehicles

Bond / Note
Fund
Company
DIBs
Facility
Project

Proportion of blended
finance vehicles

Share:

Sectors

Energy and financial services have consistently accounted for the largest number of blended finance transactions in the market, comprising 35% and 21% of transactions, respectively. Using Convergence’s fundraising data as an indicative example, we expect more activity in the agriculture, health, and education sectors in the years ahead.

Distribution of blended finance
transactions across sectors

All Time
Recent (2017-2019)
Currently Fundraising

Distribution of blended finance
transactions across sectors

Share:

Blending Archetypes

Between 2017-2019, Convergence has observed that blended finance transactions have less commonly used multiple types of concessional capital (i.e., blending archetypes) in a single structure, as indicated by the proportional decrease in blending archetypes across the board. This suggests that these structures are generally becoming less complex.

Proportion of blended finance transactions across blending archetypes

All Time
Recent (2017-2019)

Proportion of blended finance transactions across blending archetypes

Blended Finance & the Sustainable
Development Goals

SDG alignment and aggregate financing in blended finance transactions (2014-2019)

Blended Finance Transactions
Commited Capital (USD, Billions)

SDG alignment and aggregate financing in blended finance transactions (2014-2019)

Gender Equality (SDG 5)

Using Convergence’s fundraising dataset as an indicative example, nearly 42% of transactions currently seeking blended capital are aligned with SDG 5, indicating increased attention toward gender equality and gender lens investing.


Partnerships for the Goals (SDG 17)

The alignment between blended finance and the SDGs, by number of blended finance transactions aligned to each SDG, is understandably strongest for Goal 17 (Partnerships for the Goals).

Regions

SDG alignment and aggregate financing in blended finance transactions (2014-2019)

All Time
Recent (2017-2019)
Currently Fundraising

%

proportion of
global transactions

SDG alignment and aggregate financing in blended finance transactions (2014-2019)

17%
43%
13%
4%
17%
14%
Latin American &
the Caribbean Sub-Saharan
Africa Middle East &
North Africa Europe &
Central Asia South
Asia East Asia
& Pacific
In line with our previous forecast…

Convergence has observed a regional shift in blended finance flows with Asia asserting itself as the new center of gravity, with notable traction in East Asia and the Pacific.


How many organizations have participated in blended finance to date?

200
1,000
500
1,200

Share:

Investor Trends

Multilateral Development Banks and Development Finance Institutions are the most prominent organization type in blended finance, accounting for 35% of financial. They have been major providers of concessional financing in their financial commitments to blended finance transactions. However, development agencies have been the largest providers of concessional financing to date, accounting for 40% of all such financing, and 44% of all concessional financing in 2017-19.

Sources of financial commitments to blended finance transactions

All Time
Recent (2017-2019)

Sources of financial commitments to blended finance transactions

There has been an uptick in the deployment of debt in financial commitments to blended finance transactions, accounting for 46% of commitments in 2017-2019, compared to 39% across all years.


There has been a slight dip in the deployment of equity, from 35% across all years to 30% for 2017-2019.

Instruments deployed in financial commitments to blended finance

All Time
Recent (2017-2019)

Instruments deployed in financial commitments to blended finance

Voices from the Field

Coordinating for Better Blending: In the field of blended finance, coordination occurs across the aisle.

Liquidnet:

Billions to Trillions (B2T) Initiative

Diverse market participants along with experts from various fields uniting to build a shared vision and product roadmap for unleashing more blended finance at scale. In July, B2T initiated its first Working Group on Climate Finance. The community plans to launch additional Working Groups in the coming months, focused on Healthcare and Education.

Catalytic Capital

Consortium

Philanthropic organizations aim to invest up to USD 150 million on a matching basis in funds or intermediaries that demonstrate a powerful use of catalytic capital across diverse sectors and geographies.

DFID Scale

Working Group

Convening a group of development-focused organizations, across industries and sectors, collaborate on scaling blended finance vehicles for increased developmental impact.

OECD

Tri Hita Karana

Roadmap

A multi-stakeholder effort to bolster market-wide coordination to more effectively and efficiently deliver the financing and development impact needed to achieve the SDGs.

Response, Recovery,

& Resilience

Investment Coalition

This initiative is managed by the Global Impact Investing Network (GIIN) and supported by a group of leading foundations to streamline impact investing efforts addressing the large-scale social and economic consequences of COVID-19.

The 2020 State of Blended Finance is Convergence’s annual report on blended finance trends, opportunities, and challenges.

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Letter from the CEO

I am pleased to introduce the 4th edition of Convergence’s flagship report, The State of Blended Finance. In four years, The State of Blended Finance has become an authoritative reference point on the global blended finance market, presenting data and analysis from the largest and most detailed database on historical blended finance transactions.

Since the first publication, we have written this report in-house, as a team, with the goal of using our unique position at the core of a growing ecosystem to reflect objectively on the field to help investors and funders strategically place their capital in support of the Sustainable Development Goals. We issue the report with humility, knowing that our data will never be complete, and we are always looking for ways to increase its value as a public good.

This year, for the first time, we supplement our analysis with perspectives from key stakeholders and a forecast of where the blended finance market is going. These additions were made possible because our own network of funders, investors and practitioners has grown, and become more representative of the field, and because the fundraising activity unfolding on our live transactions platform has reached significant scale.

2020 has been turbulent, with aid budgets in distress and investors retreating from countries and transactions most in need of development assistance and capital injection. Yet, it has also been a time of abrupt awakenings to the linkages between money, society, and nature, and a time of reimagined collaboration and dialogue among divergent sources of capital. This increased awareness and collaboration happen to be two prerequisites for composing blended transactions. We proceed with the hope that more, and better-designed, blended finance will come from this disruptive moment.

Our deepest thanks to the investors and funders putting their capital to work, and to those who contributed their expertise to the report. We look forward to the conversations and deals ahead.

JOAN M. LARREA CHIEF EXECUTIVE OFFICER, CONVERGENCE

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