Part A: An introduction to Innovative and Blended Financing
Gaps in traditional financing and social impact funding.
It is estimated that there is currently an annual shortfall of US $2.5 trillion in developing countries with respect to funding Sustainable Development Goals (SDG). In India, social impact funding falls short by forty-seven per cent, demonstrating that traditional funding in the shape of public finance and philanthropic capital do not adequately bridge investment gaps. It has also been observed that traditional funding does not sufficiently leverage the incentivising of private investment, outcome-focused investment, and the efficient use of funds.
Shifting to innovative financing.
Innovative financing has emerged to address these gaps in the traditional funding setup and catalyse additional funds for development assistance with a focus on outcome and innovation. There is a shift from the ‘grant only approach’ to diverse financial instruments and the supplementation of public and philanthropic funding with private investment. The spectrum of innovative financing includes newer models of grant and debt-based financing, conditional financing through development funds, and private investments such as impact investment and socially responsive investment focused on social as well as financial returns.
The emergence of blended financing to harness private capital for increased impact.
A subcomponent of innovative shifting, Blended financing, allows a mix of innovative financing instruments across the spectrum and uses public and philanthropic grants to de-risk and incentivise private investment for development needs. Focused on the three principles of Leverage, Impact and Return, blended finance has mobilized US $166 billion in capital to date and is poised to be an effective tool to address funding gaps and maximise impact. It can particularly have an impact on livelihood since it has the potential to solve Small and Medium Enterprises’ (SME) access to capital, support women’s entrepreneurship, and improve access to skilling opportunities for large-scale workforces.
Authors: Harsha Sanyukta, supported by Deshna Saraogi, Samar Sabarwal and Gargi Das
