How blended finance can close the prevailing investment gap and allow social enterprises to grow
In order to meet the Sustainable Development Goals (SDGs) by 2030, $2.5 trillion of additional financing is needed every year. This paper deals with a relatively young, but promising approach at raising those funds. Blended finance is the strategic use of development finance and/or philanthropic funds to mobilize private capital flows to emerging and frontier markets, resulting in positive results for both investors and communities. The goal of this analysis is to give an extensive overview on the topic and to identify how methods of blended finance can close the investment gap. By reviewing the most prominent instruments of blended finance, demonstrating their potential as well as addressing the associated risks, this paper provides a guideline for donors and recipients. It also gives an overview on the critical subjects of impact measurement and the scaling up of social impact business. Both topics are closely related to blended finance, since public and philanthropic donors as well as impact investors often require a thorough impact monitoring in order to make an investment. Furthermore, the upscaling phase in a company’s development is where blended finance can make its biggest contribution. By definition, this phase is associated with great investment needs that often hinder the further growth of a social business. Consequently, the company’s impact remains at a small scale. This paper will show that blended finance is of particular help for such companies and can thereby make a substantial contribution toward meeting the SDGs by 2030.