About Blended Finance

Meet Rajesh and 500 other farmers from rural Maharashtra
Each owns 2-3 acres of fertile land.

They’ve spotted an opportunity that could transform their lives: modern drip irrigation systems that would triple their yields and boost annual income by ₹1 lakh per farmer.

The math works perfectly. Each system costs ₹1.5 lakhs.
The additional harvest would generate enough to repay the investment within 18 months.
The return on investment is clear, the market demand exists, and the farmers have the skills to succeed. But here’s where the story usually ends.

Why Won’t Farmers Get Commercial Loans?

When these farmers approach commercial banks for loans, they are rejected on the grounds of:

Perception of high risk of default, especially for small-holder farmers. The best estimate of default available with the commercial loan providers is 10% (i.e. 1 in 10 farmers would default on their loan).

Limited expertise in assessing creditworthiness of farmers. Commercial banks often lack the tools,  data, and localized understanding needed to make informed decisions.

This opportunity to uplift farmer livelihoods through the adoption of more water-efficient irrigation systems remains untapped.

This is what plays out millions of times across developing economies.

Why Would Philanthropy Not Step In?

Why Would
Philanthropy Not Step In?

Philanthropy only has a budget of ₹75 lakhs, which will cover the cost of only 50 modern drip irrigation systems. Large scale funding isn’t available to develop a program to support all 500 farmers in this district.

Enter Blended Finance

Let’s imagine a different ending. Instead of expecting the bank to take on all the risk of lending to small-holder farmers alone, or expecting philanthropy to bear the entire cost of irrigation systems for all 500 farmers, blended finance brings together different types of partners to create a sustainable solution.

Philanthropic capital comes in to provide a guarantee to banks to absorb the first 120% of losses , making commercial banks more comfortable to lend to farmers.

This powerful collaboration makes “impossible” projects suddenly “financially viable”. Philanthropy’s limited budget of ₹75 lakhs has catalyzed ₹7.5 crores in loans for farmers. Farmers access previously unavailable capital., Bbanks discover new markets with more manageable risk. India develops sustainable solutions that work long after the initial intervention.

So, what is Blended Finance?

Blended finance is the strategic combination of public, philanthropic, and private capital to address critical development challenges while delivering financial returns.

It represents a powerful approach that bridges funding gaps by aligning the interests of different investors to achieve shared goals.

The Bigger Picture

Our farmers’ story is just one example of how blended finance, specifically using guarantees, can be tailored to address a  particular challenge. However, different challenges, even within  similar contexts, may call for different instruments.

On the right hand side are a few examples of tailored  blended finance instruments designed based on specific development challenges.

Across developing economies such as India, blended finance is  already helping address the $4.2 trillion annual funding gap needed to achieve the Sustainable Development Goals. By making smart investments in market building and risk mitigation, we can unlock massive amounts of private capital for sustainable development – capital that has the expertise, scale, and incentives to create  lasting change.

01 Interest Subvention

Maya and 2,000 other women entrepreneurs run small textile workshops in Gujarat. Solar-powered sewing machines would cut her electricity costs substantially, but the ₹50,000 installation seems unaffordable. These women are willing to take a loan from a micro-finance institution to purchase these machines, but the interest cost is too high. Through interest subvention, a foundation can subsidize 240% of the interest cost, making monthly payments manageable and enabling the investment.

02 Impact Bonds

An education NGO commits to bringing 80% of 1,000 out-of-school urban slum children back to school within two years. Donors pay ₹5,000 per child only when successfully re-enrolled and retained. A social investor funds upfront program costs, earning returns only when measurable impact is delivered. This shifts focus from activities to actual results.

03 Technical Assistance

Karnataka smallholder farmers plan to grow sandalwood and turmeric for export. The model is profitable in the long-term, but local banks are not sure how to assess cash flows or risks of this nature of business. Grants from a foundation can help farmers build financial projections and develop a business model while providing banks with tailored risk assessment templates for this type of business, enabling financing to flow.

04 Outcomes-Based Funding

A private solar company that usually serves urban commercial clients has avoided rural markets due to high logistics costs. As a result, thousands of off-grid tribal schools remain without power.
To incentivize the company to expand into underserved regions, a philanthropic foundation offers outcomes-based funding: ₹50,000 per school will be paid only if solar systems are installed and maintained with 90% uptime for one year. An independent third party verifies system performance using remote monitoring and field visits.
The outcomes-based funding structure reduces risk for the private company and creates a strong business case to expand operations into rural areas it previously overlooked.

Let’s Collaborate.

Whether you're looking to fund change or create it, we're here to design blended finance solutions that meet your goals.

Get in touch