Blending is trending. Building Bridges provides a momentum to take stock of good practices from a public sector perspective. We identify 5 aspects the blending community should contemplate going forward.

Using public funds catalytically is an effective way to close the financing gap to achieve the SDGs. However, questions on additionality, minimum subsidy, or impact washing arise quickly for practitioners. The OECD DAC Blended Finance Principles provide guidance in this regard, for instance that blending is time-bound and avoids market distorsions. As a public sector actor that has engaged in blending for more than twenty years, SECO identified the following five aspects that can help to operationalize the Principles and use blended finance for impact:

Provide early stage technical assistance and funding to support innovative ideas

The design and launch of impact investment vehicles is complex, time-consuming and costly in relation to investment product sizes. The Private Infrastructure Development Group PIDG[1], of which Switzerland is a founding donor, nowadays has an array of instruments including guarantees, and early stage technical assistance to bring sustainable infrastructure projects in difficult contexts off the ground. Similarly, the recently announced SDG Impact Finance Initiative (SIFI)[2] will provide early-stage funding to incentivize innovative ideas and reward new forms of collaboration, ultimately contributing to the availability of more impact investment vehicles. It will be supported by Convergence, a recognized leader with a global network for blended finance that has been leading on early-stage funding of this kind over the past five years.

Plan a series of competitive calls to increase value-for-money

In 2017, SECO launched for the first time a competitive call for proposals for grants to technical assistance facilities linked to impact investment funds. It therefore shifted from selective partnerships with fund managers to an open and competitive call for proposals. By defining the contribution to selected SDGs, it stimulated innovation and introduced SECO to new approaches and themes. SECO was in a better position to compare the various proposals against defined criteria and against the Blended Finance Principles. SIFI will replicate this competitive approach and allow for best value-for-money.

Pool catalytic funds to get better blended finance deals and reach scale  

To achieve scale, actors need to join forces and work together. Not only is more collaboration needed between grant funding actors and the private sector but also within the two types of actors. By bringing together public and philanthropic actors and pooling their funds, the Initiative will mobilize more private capital by supporting blended finance vehicles for the SDGs. However, collaboration refers not only to funding but also to bringing together ideas, experiences and expertise. In this sense, SIFI will leverage the rich ecosystem of private, philanthropic, public and development actors.

Demand quality impact reporting to show you are making a difference

As a public donor committed to reaching the SDGs set out in the Agenda 2030, SECO measures, monitors and reports on intended and unintended impacts of its interventions. This applies also to blended finance initiatives. A recent example is the detailed impact report published for the Loans for Growth Fund, a blended finance vehicle that mobilized private sector funds with a 1:10 ratio thanks to a first loss co-financed 50-50 by SECO and a large Swiss bank. Since the fund’s launch in 2016, Symbiotics, the Fund manager, has published a comprehensive effectiveness report each year enriched with a variety of metrics including business outcomes, employment inclusiveness, and workplace safety. By providing detailed information on impact at both the financial institution and SME level, the report informs about tangible development results attributed to the additional private finance mobilized and demonstrated that investments in entrepreneurship clearly contributes to reaching the SDGs. Additionally, SECO was an outcome funder in the first Social Impact Bond in a developing country. Together with the Colombian government, it paid for job placement and retention of vulnerable people.

Support market reports to provide transparency and benchmarking as a public good

Catalytic funders need more transparency and benchmarking, which will contribute to a healthy development of the market. In order to make informed decision and use public funds effectively, key information, including financial information (e.g. average/median management fees; expected IRR for specific geographies/sector); as well as the amount of concessional capital and subsidies for blended finance deals (including first losses, guarantees and technical assistance) are needed for making decisions. These information are still difficult to find and hence to compare best practices. This underscores the importance of analytic studies, such as the PAIF report[3], which enhances transparency and benchmarking for about two-thirds of this industry worldwide. As a sponsor of the first and second editions, we expect that these kind of reports will become an important instrument for public donors to identify and prioritize their support where the impact leverage is at its highest, without substituting private actors.

Conclusions and further information

SIFI encompasses SECO’s past experience in the area of impact and blended finance such as in the Loans for Growth Fund, SECO’s first competitive call for proposals, its investment in impact funds and the Private Infrastructure Development Group PIDG, and its role as outcome funder. It thereby aims to provide different blending instruments under one roof.

Article for Building Bridges

Authors: State Secretariat for Economic Affairs SECO/ Liliana de Sá Kirchknopf, Christine Lewis, Massimo Bloch, Christian Brändli (