1 Could you provide an overview of Convergence Blended Finance's mission and core operations, particularly in promoting blended finance models globally and within India? What initiatives or collaborations has Convergence undertaken to advance blended finance within the Indian ecosystem?

Convergence is the global network for blended finance. We aim to play a critical role in driving investment to emerging markets and developing economies to advance the United Nations (UN) Sustainable Development Goals (SDGs) and Paris Agreement. We do this through connecting, educating, and supporting investors to execute blended finance deals.

We have three core operations that help us achieve this mission. The first is our investment network. Convergence’s membership comprises over 190 organizations, including aid agencies, development finance institutions (DFIs), philanthropic organizations, and private debt and equity investors. Members include organizations domiciled in India, and global concessional and commercial stakeholders that have a strong presence in India.

To support its members, Convergence has been organizing thought leadership and networking sessions for the blended finance community to come together and advance their work in India. We support our Indian members with capacity building programs on blended finance, thus bringing in global best practices, and we amplify success stories of the strong impact ecosystem within India. Convergence has also stepped up our conversations with policy makers and regulators within the country. We have provided advisory services to local DFIs and sub-national governments to support their private sector mobilization objectives through blended finance.

Second is through our design funding program. The program offers grants to blended finance practitioners looking to secure feasibility, proof-of-concept, or expansion stage funding, alongside support for the development and launch of early-stage financial structures that aim to attract private capital. Many of these programs target Asian markets, such as our Asia Climate Solutions Design Funding Window and our previously active Asia Natural Capital Design Funding Window. Convergence has received 100 applications to date from organizations located in India for the Asia Climate Solutions program, accounting for around 25% of current applicants. Overall, six grantees from Convergence’s design funding program have been based in India. These grantees include Haqdarshak Empowerment Solutions Private Limited and Villgro Innovations Foundation, which received funding for the Climate Resilience Collective initiative and the Inclusive Climate Action Scaleup Facility respectively.

Lastly, we further encourage the uptake of blended finance through market building tools. Convergence maintains the most comprehensive and up to date market data on blended finance transactions globally. Using this data, we provide original market intelligence and knowledge products, such as case studies and data analysis. Our database currently contains 126 active transactions in India. In 2024, using this data, we released a data brief on the use of blended finance in South Asia, with specific emphasis on India-focused transactions. The brief explores trends, opportunities, and challenges for blended finance in the region.

2 What are the key components of an effective blended finance framework tailored for emerging markets like India. Are there specific sectors where such frameworks are particularly critical, and how should they be adapted to address sector-specific challenges?

The main purpose of blended finance is to use catalytic capital from public and philanthropic sectors to mobilize commercial private capital into transactions that support the SDGs and Paris Agreement. Importantly, blended finance is a structuring approach rather than, for example, an investment strategy. How concessional financing is included in blended structures can vary, but in general there are a few common ways. The graphic below briefly explains what Convergence calls the archetypes of blended finance, which establishes a general framework for how transactions can be structured:





There are a few considerations that make a blended transaction more effective. For example, it should always incorporate the minimum amount of concessionality required to mobilize commercial financing to ensure long-term viability. Concessional capital should also be used strategically to target the specific risks or pain points within a transaction preventing private investors from entering the market. In some cases, this might be using public funds to de-risk emerging country investment risk to produce fiduciary and regulatory compliant investments, such as using concessional capital to improve debt investment risk from a non-fiduciary credit rating of “B” or “CCC” to fiduciary-compliant “BBB” and “BB.” In other cases, concessional capital can be used to help hedge against foreign exchange risk. If investors are borrowing in foreign currency and deploying in local currency, hedging costs can be prohibitively high.

While there are key components that are generally important within every blended finance structure, the most important is the strategic use of limited concessional capital to mobilize private investment into transactions that are otherwise not currently commercially viable.

One of the largest benefits of blended finance is its flexibility. The structure of combining concessional, catalytic capital with commercial capital means it can be applied with any sectoral lens in mind. Convergence has seen blended finance used to address key challenges in sectors ranging from education to renewable energy. In each instance concessional capital is used to address the concerns that prevent the sector or sub-sector from being commercially viable. In renewable energy for example, large, upfront infrastructure costs coupled with long pay-back periods can cause investor hesitation. Concessional capital in the form of patient or below market-rate debt can allow project developers to raise initial capital and provide a runway for the project to generate market-rate returns.

The Government of India has already taken steps to incorporate blended finance structures in priority sectors and adapt it to local contexts. The Small Industries Development Bank of India (SIDBI) for instance, has provided junior and senior equity and debt to transactions that support a range of sectors, from microfinance to climate, while the National Skill Development Corporation (NSDC) has supported outcome-based financing in education. Last year the Government, in partnership with the World Bank, also established the Goa Blended Finance Facility, which is climate-focused and will enable deal sponsors to access and mobilize concessional capital for low-carbon and climate-resilient transactions. More recently, the Indian Government announced a blended finance facility for affordable housing called the Special Window for Affordable and Mid-Income Housing Fund.

Though blended finance is not a silver bullet for all development challenges, these efforts provide examples of the wide-ranging capability of blended transactions to be adapted to critical sectors within India.

3 In which sectors such as Education, Healthcare and Energy do you see the most potential for blended finance to make a significant impact in India? Could you share any successful case studies that highlight the role of blended finance in catalyzing impact investments within these sectors? What metrics or outcomes from past case studies can be used to demonstrate the effectiveness of blended finance in India?

We have just discussed how blended finance can be used to address a variety of sector-specific concerns and how the Indian Government is using this structuring approach to solve challenges within priority sectors. We see further opportunities for blended finance to be impactful in India in the renewable energy sector. While there are significant efforts being made to reduce dependence on carbon-intensive energy sources and the transition from coal to renewables, there is still a massive financing gap to reach ambitious net-zero goals, with some sources putting the gap at as high as $394 billion. The Government of India is already working towards attracting large pools of private capital in certain sectors by setting climate targets, but blended finance could be a critical tool for meeting them.

Education and healthcare are also sectors where we could see a greater uptake in blended finance to close financing gaps. A report by Convergence found that scaling private financing into these sectors will require the development community to deploy catalytic financing to launch funds of funds to develop a broader investment ecosystem in the space. It further found that the investment landscape for health and education is defined by single fund managers, foundations, and donors, without that layer of funds of funds found in other sectors, like technology.

Despite these challenges, Convergence has recorded examples of blended finance being used to forward education and health goals in India. One example is the Haryana Early Literacy development impact bond (DIB), which focuses on early literacy development in Haryana, India. The DIB was initiated by Social Finance India in collaboration with the Language and Learning Foundation and the Government of Haryana. Concessional capital was in the form of outcome payments and was provided by IndusInd Bank, SBI Capital Markets, and SBI Foundation. Additionally, the Central Square Foundation extended a risk guarantee of $450 thousand to the DIB's investors. This guarantee stipulated that if the expected outcomes were not achieved, the foundation would allocate the funds to another corporate social responsibility (CSR) initiative to cover the shortfall.

On the healthcare side is the $250 million SAMRIDH Blended Finance Facility, which helps address challenges in the Indian health system by increasing the number of skilled workers and supporting health infrastructure. The Facility mobilizes affordable capital for healthcare enterprises through grants, equity, low or no collateral debt, and other affordable financial instruments. It combined philanthropic investment in the form of grants, from foundations such as Rockefeller Foundation and Ford Foundation, with commercial lenders in a debt pool from local financial institutions. A concessional guarantee from the 360 One Foundation helped to leverage additional funds from the NSDC.

When we talk about metrics that suggest the effectiveness of blended finance transactions, we focus on leverage ratios and impact. Convergence has found that in the overall blended finance market, every dollar of concessional capital leverages around four dollars of commercial capital. Higher leverage ratios help showcase the additionality of concessional capital to a transaction and highlight the potential of similar transactions to be attractive to private investors. Moreover, since blended finance is intended to address the SDGs and Paris Agreement, effective blended transactions should have a high impact. Lastly, effective blended finance transactions should create a demonstration effect of the viability of a certain sector to offer commercial returns.

4 What are the primary barriers, such as risk aversion, lack of understanding, or regulatory concerns, that prevent local family offices and foundations in India from engaging in blended finance? Additionally, how can organizations like Convergence play a role in educating and incentivizing these entities to adopt blended finance models?

As a whole, India has made strides in reducing barriers for blended finance transactions to allow participation from family offices and foundations, particularly through outcome-based financing and DIBs. The aforementioned Haryana Early Literacy DIB is one example; another is the education-focused Skill Impact Bond, launched in 2021. The NSDC, alongside the Michael and Susan Dell Foundation, participated in the DIB as risk investors, providing a total of $4 million in upfront capital to finance the program, alongside additional development capital.

Despite this, there are barriers that remain. For one, government regulations can reduce the ability of investors to fully participate in blended finance transactions. In particular, there are opportunities to allow corporations, through regulatory changes, to use CSR more catalytically within India to support development goals. There is also a general lack of knowledge within the investor community around blended finance and how it can be adapted to address various challenges. Compounding this issue is the often-bespoke nature of blended finance structures, which can increase transaction costs and investment timelines. This may cause hesitancy amongst investors that are already unfamiliar with the structuring approach.

Within India, Convergence has been working to address the knowledge gap and educate stakeholders on blended finance. By supporting Convergence’s network of local members, we strive to build capacity within the ecosystem and find ways for local forms of capital to support blended structures. Ultimately, we see huge potential for the mobilization of both concessional and commercial capital from local capital providers to grow the blended finance market. Going forward, our goal is to continue creating partnerships with organizations that are working with family offices and foundations and engaging with policy makers and regulators.

In recent years Convergence has also been focused on reducing transaction costs and shortening timelines for deal structuring by building replicable and scalable blended finance structures. One of the ways Convergence is doing this is through its Private Investment Mobilization Models (PIMMs) initiative, which will create a framework that makes it easier for private capital to flow into developing countries for sustainable development. The project aims to address the three most important challenges to mobilizing private investment: (i) creating a larger universe of viable projects, (ii) increasing project-level investability, and (iii) increasing portfolio-level investability.

5 Could you highlight 3-4 specific policy or regulatory changes that are necessary to have immediate impact and enhance the blended finance ecosystem in India? Are there global examples that can be adapted to the Indian context?

The Government of India is already making progress towards implementing programs and policies that encourage the uptake of blended finance frameworks. For example, in the climate mitigation sector, by remaining transparent in the climate asset bidding process and by setting a clear regulatory framework around investments, the Indian Government has created a more conducive investment environment. Another initiative the Government has undertaken is the 2019 creation of the Social Stock Exchange (SSE), an electronic fundraising platform under the regulation of the Securities and Exchange Board of India (SEBI). The intention of the SSE is to provide a list of social enterprises and voluntary organizations that focus on social welfare objectives, so that they can raise capital. December 2023 saw the first SSE listing from SGBS Unnati Foundation. The SSE could prove useful in raising capital for transactions that target the SDGs and could point investors interested in participating in blended finance transactions towards potential deals.

Regarding policy and regulatory changes, Convergence is currently working with the UN Development Programme (UNDP) on a policy framework for Asian countries to create an enabling environment for blended finance to scale. The framework will contain concrete guidelines for policymakers, with the intention that these guidelines can be customized within the Indian context.

6 How can blended finance be utilized to enhance public finance and support large-scale, scalable solutions by the Government of India? Can you share examples of innovative blended finance models that have been successfully integrated into public sector projects?

Public funding can be a critical enabler for blended finance in India. The spirit of enhancing public-private-philanthropic partnerships is essential to advancing the country’s development agenda given its size and the unique challenges it faces. This is especially true for climate adaptation and social sectors. Again, we have already seen evidence of that through outcome-based financing structures, education-related DIBs, and government-supported blended transactions and initiatives. We have also seen dialogues and initiatives emerging at sub-national levels on how public finance can be used strategically to alter the risk-return profile of projects that have the potential to be bankable or investible and thus mobilize mainstream private finance to flow into areas where it currently is not.

The more facilities and structures, such as the Special Window for Affordable and Mid-Income Housing Fund or the Goa Facility, that are created in different sectors and sub-sectors, the more market players have an opportunity to work together in unchartered territories to establish a track record and solve for perceived risks. Using public finance as guarantees, first loss capital, and viability gap funding can support de-risking and make projects viable for private investor participation. This is especially important since public capital alone is not adequate to close many of the financing gaps within social sectors and climate related initiatives.

We have already shared examples of how the Government of India has supported public goals related to housing, climate, education, and healthcare. One example of the Government of India participating in a transaction to forward goals in financial inclusion, sustainable agriculture, and climate-tech is the Aavishkaar India Fund IV, a private equity fund that targets investments in India-based micro- small- and medium-sized enterprises (MSMEs). This Fund shows how important public financing can be in attracting private capital, since SIDBI played a catalytic role providing early-stage support through its Fund of Funds for startups program. This helped catalyze financing from international and regional investors. The Fund also received anchor investments from several DFIs, while later stage investors included the International Finance Corporation (IFC) and private investors.

7 How do you perceive the trajectory of blended finance over the next five years, both globally and in India, and do you anticipate an increase in cross-border investments into India?

It is difficult at this time to predict the trajectory of blended finance globally given recent developments with international development budgets and government priorities, and especially the challenges facing Official Development Assistance (ODA). Despite this, Convergence has noted that the blended finance market has seen growth in recent years, which signals a maturing ecosystem that is increasingly capable of mobilizing private capital at scale. In 2023, private sector capital flows to climate blended finance deals grew by almost 200%, and we saw the emergence of multiple transactions exceeding $1 billion, what we call “whale deals.” This demonstrates that the sector can consistently blend billions and attract private investment. We anticipate that as development aid constricts the need for blended finance will grow, since it is designed to counteract prohibitive conditions.

There are also some emerging trends in India. One major trend is the growing importance of domestic capital mobilization, which will be key given India’s well-developed capital markets, the strong banking system, its growing impact investing landscape, and the increasing amount of concessional funding available from public and philanthropic sources. Given the outlook of global concessional capital, and competition from other countries that have more pronounced needs for ODA funding, tapping into local sources of capital will be key to reach scale. This local capital includes financing from CSR activities and philanthropic sources, which is currently being funneled through grants. The graphic below shows domestic sources of concessional and commercial financing.



We also foresee that cross-border flows will likely continue, given growth opportunities in the Indian market and high interest from foreign investors.

Overall, there are significant opportunities in India across priority sectors to strengthen its blended finance market. Convergence will continue to support the blended finance ecosystem through its various activities and products, including the upcoming UNDP Policy Framework and the PIMMs initiative.