Blended finance aims at enhancing the concept of partnership between the public and private sector by maximizing synergies while setting clear impact targets towards sustainable development. The capability of blended finance to mobilize additional finance from the private sector has been increasingly recognized by the international community as a way to help bridge the estimated annual USD 2.5 trillion investment gap to achieve the Sustainable Development Goals (SDGs). The current blended finance market is still dominated by public sector actors. However, in order to reach the SDGs, it is essential to catalyze and upscale private capital investments. To successfully unlock private capital at scale, blended finance structures must be customized to meet the needs and expectations of private investors.
As an impact investment manager dedicated to fostering inclusive and climate-smart growth in developing countries for almost 20 years, BlueOrchard has unparalleled expertise in mobilizing private capital and in designing, structuring, and managing blended finance mandates. The majority of the funds managed since the company’s inception back in 2001 are blended finance structures. This paper builds on BlueOrchard’s long standing experience with blended finance funds. It examines how to shape blended finance structures in order to ensure the contributions of different investors and to unlock private capital at scale to achieve the SDGs.
BlueOrchard conducted a survey among its private sector investors to identify the underlying motivations for private investors to use blended finance as an investment mechanism. The main findings of the survey show: I) the desire of private investors for blended finance mandates, and II) their requirements and preferences in regards to a number of variables that can be tailored to ensure the broader participation of the private sector.
We have elaborated a new vision of blended finance: “Blended Finance 2.0” by I) building on these findings and on the testimonials from a large group of stakeholders (including public and private sector representatives, policy leaders and think tanks), and II) leveraging BlueOrchard’s extensive experience in blended finance.