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12 September, 2018

Switzerland, a hub for blended finance?

Switzerland, a hub for blended finance?

“To attain the SDG’s, we need to find ways to do things differently and more efficiently by partnering with the private sector. Blending is one critical way to achieve this,” said Ivo Germann, the Head of Operations of the Economic Cooperation and Development Division at the State Secretariat for Economic Affairs (SECO), in his opening remarks at a blended finance event hosted by Convergence and Swiss Sustainable Finance in Zürich.

The event brought together over fifty individuals, representing a cross section of those working in the blended finance space in Switzerland, including private investors, asset managers, officials from development agencies and foundations, and academics. What was clear from our discussions is that Switzerland is becoming a hub for blended finance.

Here are three reasons why:

Long tradition of finance and international development

Switzerland has a long history in finance and international development assistance. The financial sector is an important pillar of the Swiss economy, contributing to a third of the country’s GDP growth over the past twenty years.

The country also has many specialized investment managers who play a pioneering role in designing financial products and services for under-served communities in emerging and frontier markets. Additionally, it is noteworthy that Switzerland is a key player in the microfinance sector, managing 38% of global microfinance investments.

Government takes the lead on innovative finance

SECO and the Swiss Development Cooperation (SDC) are the two government bodies responsible for implementing Switzerland’s foreign aid program and Official Development Assistance (ODA).

As ODA levels have remained relatively flat over the last few years, both SECO and SDC have recognized that the private sector has an important role to play in closing the $2.5 trillion SDG funding gap. Both agencies are in the process of stepping up their private sector engagement with a specific focus on blended finance.

SECO has been an active blended finance practitioner, some recent initiatives include:

  1. Concluded SECO 17 - an open call for proposals to support investments for development through technical assistance funding. Four proposals/organizations were selected through this process, three of whom are Convergence members and include BlueOrchard Finance, The Meloy Fund (Rare Ventures) and responsAbility Asset Management.

  2. Served as a founding member of the Private Infrastructure Development Group (PIDG), a consortium of companies that leverages blended finance approaches for the mobilization of private sector investment along the entire life-cycle of infrastructure projects.

  3. Provided seed funding to the responsAbility Global Microfinance Fund, which managed to raise private investment on the back of that contribution, resulting in a $1 billion fund size.

  4. SECO’s upcoming 2021-24 framework will seek to explore ways to realize the full potential of blended finance and make the best use of its resources.

SDC, the largest unit of the Swiss Foreign Affairs Ministry with a budget of $1.6 billion for humanitarian and development work, is also looking at blended finance as way to support social enterprises and bridge the gap between public sector/philanthropic capital and impact investors. Recently it has:

  1. Participated in an innovative outcome funding solution for a social enterprise called Clinicas del Azucar, the largest provider of specialized diabetes care in Mexico.

  2. Planned to double the number of private sector partnerships over the next two years. Blended finance solutions will be critical in ensuring that these partnerships are effective in terms of attracting the investments required to scale and be financially sustainable.

Momentum within the Swiss private sector

There has also been considerable interest in blended finance amongst the Swiss private sector. Swiss Sustainable Finance (SSF), an association of over 90 private sector members from across a range financial services providers and investors, has created a working group for members active in the field of investments for development. Based on our collaboration with SSF, this group is especially interested in learning more about blended finance by looking at specific examples of innovative transactions in the space.

Finally, several Swiss based investment funds, asset managers, and foundations such as BlueOrchard, responsAbility, UBS Optimus Foundation, Symbiotics, and Clarmondial, have designed innovative blended finance structures with the aim of leveraging concessional capital to attract private investment at scale. Through our Design Funding program, Convergence has supported Clarmondial to develop the Food Securities Fund, which is a novel blended finance structure that aims to drive systemic change towards responsible and climate smart agricultural practices.

By combining its financial sector expertise with the public sector’s clear mandate to support sustainable development, it is clear that Switzerland is well positioned to become a hub for blended finance.

About the Author
Aakif Merchant

Aakif is a Senior Associate on the New Products & Knowledge team. Aakif brings over 6 years of experience as a management consultant having most recently served as Principal of the NeXus Consulting Group, where he spearheaded business development and project execution across a variety of sectors including international development and retail. Aakif has also worked at Dasra, India’s leading strategic philanthropy foundation, L.E.K Consulting in New York and as a legislative and economic advisor for the Parliament of India. Aakif holds an M.B.A. from the University of Toronto and a B.A. in Economics and Political Science from The George Washington University in Washington D.C.

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