Blended Finance - When the Silver Bullet Tarnishes

It was 2022, and I was at a conference in MBS with the subtitle, “Scaling Blended Finance”. Big names, bright lights, bang bang. All that glitters is not gold?

At the TBNA Conference in Sep 2024, our panel addressed the question: why has blended finance hit a brickwall? By definition, blended finance (BF) is using philanthropic or public capital as a catalyst to attract and/or increase private sector investment (in the name of sustainable development). On paper, that is quite ingenious. On implementation, it runs into nuanced issues with equity and purpose.   

Essentially, BF is asking philanthropists to subsidize the profits of private investors. This ask is not fair or equitable to the philanthropists. The lost narrative here is the purpose of business, which brings us to the broader market problem around expectation of returns. Instead of capitalizing on the goodwill of the philanthropist, perhaps let’s ask the private investor: what is the purpose of business, which leads us to the deeper question of values. For so long, the world says the sole purpose of business is to make a profit, then you take some of it to do philanthropy or CSR. Bruno Roche (another conference speaker and Founder, Economics of Mutuality), states: the purpose of business is ‘to produce profitable solutions to the problems of people and planet, and not to profit from producing problems for people and planet’. 

So then, the next question to ask is: what is the problem we are trying to solve? How can we turn this problem into an opportunity? Instead of looking at what we can get, we should be looking at what we can give away. Asking, “what is my return”, ignores the cost of that return. If social impact is integrated into the purpose of business, then providing solutions to societal problems will be profitable. That’s where the integrity of the solution comes in. At the risk of impact washing, BF should not be viewed through a capitalist lens, nor should it be another fancy way for making “market rate returns”. Ultimately, the economics have to make sense for everyone involved, including the philanthropists. 

We all want to change the world. They say, you must be the change you want to see in the world. Individual action is required for societal change. You ask me, what is my return? I ask you, what are your values? An astute investor always counts the cost.