David Beckham’s iconic signature dead ball free kicks remain enshrined forever for curvy goals which flummoxed the best goalkeepers in the world but David’s was certainly not known for his innovative financial structuring skills.
Welcome Blended Finance. Blended Finance not to be confused with bending finance, is fast becoming an important and potent tool for bridging the yearly $2.5tr gap to meet the UN Sustainable Development Goals target by 2030. Blended Finance is not a panacea for the global development crisis but stills works as an innovative way to pool in commercial capital to aid risk-adjusted return for development projects. OECD defines blended finance as the strategic use of development finance for the mobilization of additional finance towards sustainable development in developing countries. This is a defining change in the scope of blended finance from its work as various financial structuring instruments to its strategic use as a form of finance to eradicate social inequity. The means to attract additional capital for development through governments, foundations, development finance institutions through concessional (soft loans with lower interest rates and/or longer repayment duration) or non concessional resources or though public or private relationship gives a defining new policy perspective to blended finance.
Blended finance works in offering private investors a first loss guarantee, mezzanine or senior debt to cushion against potential losses with actors from development space i.e, donors, multilateral development banks and development finance institutions taking equity first loss. Although the field proposes a lot of promise, only $81 bn of blended finance has been raised for development work over the last four years according to OECD. Much of the capital is deployed for infrastructure and climate change with Africa attracting 30% of total contributions followed by Asia (15%). Various kinds of instruments are used to mobilize capital like Shares in CIVs, Guarantees, Syndicate loans, credit lines and direct investment in companies. Going forward lets look in detail at how shares in CIVs (collective investment vehicles) work.