Blended Finance: Accelerating Social Impact Through Diverse Capital

In the world of philanthropy, working together is essential. Whether it’s teaming up with people, sharing ideas, or combining different types of funding, collaboration is key. One effective way to do this is through blended finance, which mixes public, charitable, and commercial money to achieve social goals.

One of the reasons blended finance is so important is that it helps us measure and achieve impact. We use metrics to improve the outcomes of our programs and support the best initiatives. This focus on results is built into the blended finance model, ensuring we make a real difference.

Leveraging Philanthropic and Commercial Capital for Greater Impact

Our approach includes both grants and investments. We support social enterprises through equity, debt, and guarantees. The goal is to help these businesses grow and attract commercial capital once their models are proven successful. This mix of funding sources is at the heart of blended finance. At the same time, we provide grants to nonprofits to further their mission of deepening and scaling impact for the communities we serve.

Blended finance works by combining philanthropic and commercial capital. Here’s how each type contributes:

• Philanthropic Capital: This money is focused on making a positive social impact. It’s willing to take risks on new ideas that still need to be proven. However, there isn’t enough philanthropic capital available to keep supporting high-potential solutions at scale.
• Commercial Capital: This money seeks financial returns and prioritizes cost management and viable business models. It demands financial discipline and measurable returns on investment but might avoid riskier projects that could have significant social impact.

By blending these two types of capital, we create a powerful synergy. This approach isn’t about choosing one type over the other but leveraging their combined strengths. Blended finance brings in private investors, businesses, and development institutions, pooling resources for greater impact. We ensure transparency and accountability, making sure every dollar serves both financial and social goals. This way, we can scale up social impact far beyond what philanthropic capital alone could achieve.

Blended Finance Innovations: Transforming Social Financing

Since 2015, our foundation has used blended finance in several innovative ways:

1. Social Success Notes (SSNs): This is low-cost debt provided to social enterprises that can service debt. The enterprises can use the debt to scale their models, and the debt providers can reward service providers with interest discounts when they meet specific outcome goals, encouraging high performance.
2. Social Impact Bonds (SIBs): In this model, investors provide upfront capital to service providers who then deliver outcomes. Investors get paid back with interest based on the results. Examples include the Quality Education India Development Impact Bond (QEI DIB) for education and Skill Impact Bond.
3. Returnable Grants (RGs): These are loans provided in the form of grants to social enterprises on a moral contract to return the loan on achievement of its purpose. This capital can be reused by other eligible enterprises, creating a sustainable funding cycle.
4. Credit Guarantees: These guarantees help derisk private capital in projects where the financial risk is too high for private capital. Social capital leverages such tools to attract mainstream capital to underserved areas, that are not typically served by traditional lending institutions.

Blended finance unlocks large amounts of private, public, and commercial money for social impact investments, greatly enhancing the positive outcomes for the communities we serve. By fostering accountability, expanding investment opportunities, and significantly scaling impact, blended finance represents a smart, effective approach that maximizes resources and amplifies positive change.