Blended finance solutions offer the potential to combine development capital with a variety of financial instruments such as impact bonds, concessional capital, and risk mitigation structures. We consistently see that deployment of these instruments is limited because of the inherent complexity and cost. But more so, due to a lack of awareness and standardization among capital providers. Without addressing these core issues, enterprises are deemed too risky, and the potential for social and financial returns may not be realized. Through this report, we aim to raise awareness about the importance of enabling funding for social enterprises – understanding their unique characteristics and challenges in capital raising – and articulate the key issues involved in applying blended finance to SMEs. We hope to simplify current bespoke solutions to build replicable and scalable financing solutions. We propose solutions that include building capacity of enterprises, embedding sustainability into the design of instruments, simplifying impact management, and creating open databases on blended finance transactions.
De-risking Early-Stage Innovations: Using first-loss guarantees or subordinate debt to absorb initial risks
Bridging the Viability Gap in Rural Markets: Deploying concessional capital and technical assistance grants to offset the high operational costs of serving “last-mile” customers with limited ability to pay.
Incentivizing Verified Social Outcomes: Implementing results-based financing or impact bonds
Matching Capital to Long Gestation Cycles: Structuring flexible “patient” debt with extended moratorium periods to support ventures in sectors like agriculture that face seasonal cash flows and slow adoption rates.
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