Thakkar calls for more work on blending capital for global prosperity
Blended finance activity is increasing across South Asia, especially India being the most frequent destinations for receiving such investments in the region, says Joan M. Larrea, CEO of Convergence, a Toronto-based global network for blended finance, which is backed by multiple donor governments.
India is the most frequent destination in South Asia for blended financing, with over US$13 billion in aggregate financing, according to Convergence https://www.convergence.finance/ .
Private sector investors are often hesitant to participate in emerging markets, but blended finance uses concessional capital https://www.australiansuper.com/ from public or philanthropic sources to improve the risk/return profile of a transaction and attract private sector investment into sustainable development, Larrea explained at the recently held Ecosperity Week, an international sustainability conference held in Singapore 15-17 April 2024.
While the blended finance volume in emerging markets and developing economies https://www.cppinvestments.com/ is still considered small at US$15.1 billion a year (averaged over 2014 through 2023), its role is growing in importance.
“Blended finance is being used to address market failures,” elaborated Ritesh Thakkar, senior Advisor for Asia Pacific at Convergence.
Current official development assistance (ODA) from official donor countries is around US$240-$250 billion https://www.usfunds.com/about/ a year but Thakkar says, “financing the sustainable development goals, including green economy, needs money in the trillions and we only have billions for this agenda. To drive this green transition and advance SDGs, we need to bring the private sector into play in a big way.”
According to Thakkar, private capital providers seek to fund projects in low-risk and high-return markets, which are at appropriate risk/return expectations given the focus on ROI and meeting their fiduciary responsibility; the private sector will join in if it achieves market returns.
One India-focused blended transaction is Northern Arc Capital, an India-domiciled financial services platform. The company secured financing to expand its loan portfolio in various sectors, including microfinance, small business enterprises, commercial vehicle financing, affordable housing, and education. Northern Arc exclusively focuses on women borrowers.
GuarantCo provided a partial guarantee on a loan by Axis Bank to Northern Arc to improve borrower credit quality. The mobilized funds will be leveraged around five times over a five-year period.
In 2022, total blended finance volume dropped to US$9 billion due to the global economic slowdown influenced heavily by the COVID-19 pandemic, “but we are seeing a greater level of blended finance activity in 2023,” Larrea adds.
“Efforts are being made to make finance flow in areas where it is currently not flowing, especially in areas on the climate agenda,” Thakkar says.
He points out that blended finance de-risks development projects for private sector investments and works out a balance that would help developing countries get ahead with an increasing need for industrial, infrastructure, and economic developments.
But there is also an urgent need to bring investors from all sources, public, philanthropic and private, together for the industrial and economic progress of developing markets.
“It is not happening at great enough levels yet, but the way forward is to work on blending capital for global prosperity,” stressed Thakkar.
Speaking on the sidelines of Ecosperity Week Larrea and Thakkar shared their views of global development and blended finance. They are confident in the opportunities for blended finance to scale in India as well as across Asia.
Convergence maintains the largest and most detailed database of historical blended finance transactions in the market. Blended finance has mobilized approximately US$213 billion to-date based on Convergence data. Fiinews.com
