UNDERSTANDING BLENDED FINANCE MODELS

Charcha 2020: Fundraising and Philanthropy Track, 14–16th May 2020

Speakers: Kartik Desai and Aparna Dua, Asha Impact

About the session: The masterclass included an overview of the market size and trends in India and globally, a perspective on where and why impact bonds are useful, evidence on their success and key challenges, and a review of the current bonds in the market and under development.

Watch the video below for a short masterclass on Impact Bonds, one of the most widely known blended finance models.

Key takeaways from the session:

• Blended Finance can be defined as leveraging catalytic capital from philanthropic sources to increase private sector investment in sustainable development. Impact Bonds are one of the many blended finance instruments in the market today, but the most widely known.
• Impact ‘Bond’ is a misnomer and creates an image of a debt-based instrument, however, this is simply a contract between three main parties:

— Service provider (nonprofit) which provides a specific service (for example, training teachers for enhancing their leadership skills) to achieve predetermined outcomes (increase in student learning outcomes)

— The Risk Investor (Impact Investor, Family Offices, HNIs etc.) who assumes the performance management risk and provides the upfront working capital to the Service Provider

— Outcome Funder (Philanthropic organization or Government) who guarantees repayment to the Risk Investor if and only if the pre-determined social outcomes are met

• Impact Bonds are at an inflexion point; globally there are over 180 impact bonds and have mobilized ~$400mn in working capital for service delivery organizations.
• India has the highest number of DIBs in the developing world- two in education and one in healthcare collectively raising $8 Mn in risk capital impacting ~ 2.1 lakh individuals.
• Having a results or outcomes focussed orientation, these instruments represent the future of philanthropic spending post-COVID, as funding becomes scarce and impact per dollar invested becomes even more important.
• Monitoring and evaluation forms a critical piece of Impact Bonds, given the high stakes involved and hence build evidence of what interventions work or don’t work on the ground. This helps build a culture of data-based decision making to scale successful interventions.