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Source: This post is created based on the article “Blended finance can fill investment gaps to meet SDGs”, published in Live Mint on 29th March 2023.
Syllabus Topic: GS Paper 3 – Indian Economy – Finance instruments
Context: Blended finance can help to meet SDGs by filling investment.
During covid-19, several producers of raw materials fell short of working capital required to for face masks, vaccines and supply chains.
To tackle this issue, a blended financing entity called Sustainable Access to Markets and Resources for Innovative Delivery of Healthcare (Samridh) was launched. The scheme was launched with the help of multiple stakeholders including Indian government, USAID, The Rockefeller Foundation and many more.
What was the significance of Samridh scheme?
The scheme assisted over 25 million people and deployed over $16 million in philanthropic funds to over 60 social enterprises.
It has mobilized a capital pool of $300 million to offer both grant and debt financing provisions to healthcare enterprises and innovators. It helped sustain their operations.
How blended finance mechanism are attractive to investors?
Blended finance lets investors choose different risk tolerances, while all participating in the same project. It means different investors can choose different risk and return mix in the same investment.
It incentivizes and mobilizes private capital into the business where investment is hard to come.
To mitigate risks, blended finance initiatives offer technical support, capacity-building aid, relevant data and tools for impact measurement, monitoring and evaluation.
Successive grants are outcome-based, which is based on achieving set milestones for further funding.
Why there is a need for blended finance mechanism to achieve SDGs?
According to the Office of the High Commissioner of Human Rights, there is currently an annual shortfall of $4 trillion in developing countries.
A policy brief by the G20’s Think 20 Engagement Group highlights that several nations of the Global South are likely to fall short of their 2030 sustainable development goals (SDGs) on account of a funding gap.
Low-income regions find it harder to attract funding, due to small ecnomy size, high regulatory complexity and country-specific risks. Moreover, relying solely on philanthropy and government funding cannot address transnational challenges.
Therefore, blended finance can be helpful, where investors hardly invest.
Innovative blending can support project preparation and solve information gaps, enabling investment in multiple projects. It can work at the institutional level by blending public subsidies in the market to encourage private investments.
Global crises like climate change and food insecurity can be handled using blended finance.
In the G20 Sustainable Finance Roadmap also, India has emphasized the need to adopt innovative financing methods and can help the Global South develop blended finance instruments to meet SDGs.
Developing nations require an environment that lets private investments thrive, which calls for activating policies that allow private players and philanthropies to support their growth.
