04 Sep 2019: Smart Conversation with Convergence – Blended Finance and the Role of Private Investors
SFi hosted Convergence CEO Joan Larrea and Manager Adhiti Gupta for a Smart Conversation on Sept 5th.
Who is Convergence? Convergence is the global network for blended finance. They generate blended finance data, intelligence, and deal flow to increase private sector investment in developing countries. They have over 200 public, private, and philanthropic member institutions and a fundraising platform which currently has 62 deals amounting to $1.9B. They catalyse deals in blended finance through the maintenance of one of the world’s largest live deal databases (>$100M), deal matching, as well as directly awarding strategic grants to accelerate investment into innovative blended structures. Their data insights capture over 480 historical blended finance transactions that represent an aggregate deal size of over $131B. What is Blended Finance (BF)? BF is not an investment approach and is different to impact investing! It is an innovative structuring approach that allows different types of capital to invest alongside each other while achieving their own objectives. It aims to bring impactful projects onto the funding curve by combining investors of different risk appetites to leverage capital at scale. Participants in blended finance deals could range from philanthropic foundations and development agencies to commercial institutional investors. Blended Finance in Action: snapshot of 3 cases where BF has been applied:
Women’s Livelihood Bond, structured by IIX – where blended finance enabled investment into gender-based opportunities in Asia, which previously had no track record. In this case, development agencies offered protection to investors through providing first-loss capital and a partial guarantee.
Medical Credit Fund – deal sponsor: PharmAccess Group – raised $50M with a capital structure of $7.75M first-loss capital and $12M technical assistance grants, $41.5M debt capital – with a mandate to invest in healthcare SMEs in Sub-Saharan Africa.
Tropical Landscapes Finance Facility – facility manager: ADM Capital – $95M raised for investment into sustainable rubber in Indonesia, with partial guarantee by USAID and first-loss capital, Class A Notes rated as AAA, thereby attracting commercial institutional investment.
The full case studies published by Convergence are available on their website. Questions from the Audience: Investors in the room were keen to understand the opportunities and limitations of blended finance; Joan noted that the renewables sector, for example, could be seen as a successful “graduate” from the BF approach because of signals that initial subsidies are fading as the commercial profile of such investments are proven. Where successful, the potential capital leverage is exciting, but deals done to date are only the tip of an iceberg relative to the targeted $2.5 trillion funding gap for the SDGs.
Convergence’s upcoming events and news can be found here.