2020 marked an important inflection point for blended finance. Discussions progressed past whether blended finance is part of the solution towards how we can best approach blended finance to attract additional sources of financing, and larger volumes of private capital, in developing countries. This shift was met with increased dialogue, strategic partnership across the public and private sector, and a continued flow of early stage blended finance deals into the market. At the same time, we reported that blended finance is not accelerating at the pace or scale required to help achieve the SDGs by 2030.
Over the course of the year, the Convergence team addressed shifts and developments in the blended finance market, identifying trends, challenges and opportunities to scale blended finance, yield better blending, and secure larger volumes of private financing. Given the pervasive nature of COVID-19, Convergence focused on the role that blended finance could play in the road to recovery and economic reconstruction, and what impact the global health crisis would have on economies in the developing world.
Here, we note the articles and publications that received the most interest and engagement this past year:
How to Mobilize Private Investment At Scale in Blended Finance
Private sector investors, a diverse group of institutions, face significant barriers to invest in SDG projects in developing countries, such as high perceived and actual risk, low returns, and small investment sizes. In addition to these constraints, and despite their different mandates, investment criteria, risk-adjusted return targets, and regulations, these institutions are often approached by development organizations as a homogeneous group, which narrows their opportunity to engage in the real impactful investment opportunities in developing countries.
This report provides an analysis of the investment motivations, requirements, and constraints faced by institutional investors, and offers recommendations directly from private investors on how to accelerate the market and mobilize additional private capital.
The Forest Resilience Bond Case Study
Convergence has consistently identified blended finance solutions for climate and conservation as a key emerging theme. In 2020, Convergence published a case study on the Forest Resilience Bond; developed by Blue Forest Conservation, the Forest Resilience Bond (FRB) is a multi-stakeholder model that uses upfront investment from private and philanthropic investors to fund forest restoration activities. By drawing on private investment capital, the FRB model aims to increase the pace and scale of restoration activities across the western U.S.
This case study reviews the FRB’s innovative blended structure, which benefited from early stage development grant funding and concessional investments provided by the Rockefeller Foundation and the Gordon & Betty Moore Foundation, and market rate investment from CSAA Insurance and Calvert Impact Capital. Paying beneficiaries (akin to outcome funders), including the U.S. Forest Service and Yuba Water Agency, will repay investors upon completion of the work. This publication also marks the first time Convergence has conducted a case study on a blended finance transaction in the developed world, showcasing the diversity of blended finance solutions.
What role can Blended Finance play in the response to COVID-19?
From the earliest days, it was clear the COVID-19 pandemic posed a serious challenge to progress towards the Sustainable Development Goals, especially in developing countries, with increased market instability and government-imposed regional lockdowns disrupting the flow of goods and services.
Here, Convergence shares how blended finance can help respond to epidemics, and expressed why blended finance will be an important tool in assisting the medium-to-long-term recovery of health systems and economies where development is most needed.
COVID-19, the Sustainable Development Goals, and Blended Finance
The impact of COVID-19 began to get clearer by June of 2020. By this time, the data started to emerge; there was an extraction of USD 90 billion of private capital from emerging markets in the first 3 months of 2020 (the largest outflow ever recorded), as developing countries experienced rising debt burdens and depreciating local currencies.
Here, Convergence shares COVID-19’s impact on the real economy and the SDG agenda, while highlighting challenges well-conditioned for blended finance solutions.
Blended Finance & the Gender - Climate Nexus
As the climate crisis intensifies, it is evident that it is disproportionately affecting women and girls.
Here, we offer a glimpse into Convergence’s latest Data Brief (available to members only), which explores how blended finance has addressed the gender-climate change nexus to date, and presents insights drawn from interviews conducted with key stakeholders.
Five Tips for Attracting Capital to Blended Finance Vehicles
Over the last 5 years, our work to capture blended finance activity, support market acceleration, and match investors and deals, has helped us identify some effective ways to yield “better blending.”
Here, Convergence shares five steps worth taking to attract capital from funders and investors.
Assessing Gender Lens Investing in Blended Finance
Gender equality has become increasingly incorporated in the investment strategies of impact investors and institutional investors.
Here, we share what we learned from analyzing how gender has featured in the blended finance market, based on our database of over 530 blended finance transactions.
The State of Blended Finance 2020
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.
The State of Blended Finance 2020 report looks at nearly 600 blended finance transactions, representing aggregate financing of USD 144 billion to date. For the first time, our report also included perspectives from experts in the field and a forecast of where the market is headed, based on Convergence’s in-house knowledge of transactions raising blended capital. The report also reflects upon the blended finance market’s journey to scale, and the role of blended finance in responding to the COVID-19 pandemic.
Four take-aways from seminar series “A closer look at blended finance instruments”
In March of 2020, in response to travel bans and a stronger shift towards digitization, Convergence launched a series of virtual trainings to maintain momentum in building capacity in institutions eager to employ blended finance. Our first virtual seminar series, A Closer Look at Blended Finance Instruments, included eight training sessions on the use of guarantees, technical assistance, design and preparation-stage grants, and concessional capital in blended finance structures. These trainings attracted over 400 attendees from various member and non-member organizations, including development agencies, financial intermediaries, commercial investors and deal sponsors.
Here, Convergence shares a few high-level takeaways from its trainings on blended finance instruments.
There is a lot more content available on blended finance. Visit our News & Events section and Resource Library for more insights, research and perspectives on how to scale blended finance for greater developmental impact.
By Namrata Narayan, former Communications Lead (Interim) at Convergence