In 2012, the U.N. set 17 “Sustainable Development Goals” (SDGs) to help the world deal with social and environmental problems like ending poverty and hunger, fighting climate change, and ensuring everyone have to access to clean water and electricity. The United Nations has set a deadline of 2030 for countries to accomplish the SDGs. However, investment in poor regions falls short of what is required to meet this deadline.
Now, a method called “blended finance” is helping to put the power of private capital to work on issues like the environment, gender equality, and ending poverty and hunger in developing and emerging markets.
What Is Blended Finance?
Blended Finance is an innovative financing technique that leverages philanthropic funds to open new sources of financing, government expenditures, and private investments, deploying them to achieve social or environmental objectives.
The notion has recently gained traction in the field of international development finance. The Development Assistance Committee created blended finance principles to guide the concept’s design and execution, which intends to employ development finance, including philanthropy resources, to orient additional Finance toward attaining the SDGs.
Strategic Philanthropy Takes an Organization Into an Account
With more competition worldwide and less money coming in because of the economy, companies have less money to give to good causes and non-profits. Most of the time, businesses should turn down most of the requests for donations and be more careful about dealing with charity or philanthropic giving. Strategic philanthropy, on the other hand, takes an organization into account.
Strategic philanthropy is a giving method tailored to the giver’s overall mission, objectives, and values. This philanthropy strategy is designed to benefit both the organization and the society in which it operates, making it an essential component of any business-society connection. In addition, strategic philanthropy takes a focused approach, focusing on needs or concerns in line with the donating organization’s declared goal and fundamental objectives.
What is the Benefit of Blended Finance?
This technique has the benefit of delivering money to underdeveloped areas. Around three-quarters of investments in low-income countries are rated below investment grade, which explains why many investors neglect development initiatives that do not use blended financing instruments. Governments and development organizations can use blended financing to address market shortcomings without funding projects fully with public cash. Furthermore, these agreements can assist in raising awareness of prospects in underdeveloped countries and demonstrate that development initiatives can be lucrative.
What is the Framework of a Blended Finance Deal?
Grants
A governmental or charitable partner contributes funds to a project with no expectation of repayment. These monies can be utilized to help non-profit organizations or early-stage planning.
Guarantees
A governmental or charitable associate provides capital loss protection (typically in the form of insurance). (decreases risk or improves credit rating)
Technical Help
A governmental or charitable partner provides direct assistance to a business owner, usually through a technical cooperation center or an incubator.
Junior Equity
A public or charitable partner buys a stake in the venture. Still, it takes a lower position in the organization, taking on more risk for lesser rewards. This type of capital is also known as concessional capital.
Flexible Loan
It is comparable to junior stock, the public or philanthropic partner can take subordinate debt conditions, providing better terms than the market.
These solutions work to lower the investment risk for private investors, allowing public or charitable funds to be leveraged to achieve specific SDG targets.