Structuring Blended Finance Vehicles: A Catalytic Capital Tool

This report by the Global Impact Investing Network explores strategies for developing blended finance, which uses catalytic capital to draw traditional, market-rate investors into impact investment deals. Given the diversity of investors across the risk-return spectrum, this kind of collaboration can bring additional capital and new entrants to the field. However, blended-finance structures can be complex and often bespoke in nature.

 

In February 2018, the GIIN launched a Blended Finance Working Group to decrease transaction costs and scale the use of these instruments. (A list of GIIN members involved in the group can be found in the Appendix at the end of this resource.) The Blended Finance Working Group identified a number of challenges that arise in structuring these vehicles. Because blended finance involves a variety of stakeholders, the working group found that difficulties frequently occur during negotiations over the design and terms of the deal. These include differing expectations among investor types, as well as the lack of a common language among the stakeholder group. At best, these issues lead to a lengthy negotiation process; at worst, they cause deals to fall apart. To address these challenges, the working group created a suite of resource documents for stakeholders who have decided to use a blended-finance structure.