Who Is Blended Finance Good For?

A few weeks into this Practicum, working alongside an international organization that deploys blended capital in least developed countries (LDCs) and small island developing states (SIDS), I noticed a recurring pattern: the deals most attractive to commercial investors were rarely in the most fragile markets our client is more focused on. That gap between institutional movement and market reality encouraged me to look more carefully at who blended finance actually serves, and under what conditions.

Tekula and Andersen (2019) offer a detailed framework for understanding how impact investment markets are built through facilitation. Rather than treating blended finance as a single process, they identify four categories of facilitation: enabling, improving, moving, and launching. These correspond to varying levels of market preparedness and varied justifications for public or charitable participation. For instance, enabling facilitation establishes the fundamental infrastructure and preconditions for investment, such as property rights, regulatory frameworks, and standardized measurements. These are often the responsibility of governments, international organizations, and major donors. 

What makes that classification useful in our analysis is that it maps not only who does what, but also why each sort of actor is best suited to a specific position under market conditions. They believe that facilitation is only effective when it promotes social value, and that both over- and under-facilitation are risky. Moreover, their methodology indicates a structural constraint that is proven in our practical project: That is, enabling and improving types of facilitation, which are most relevant to fragile, early-stage markets, earn only a fraction of the financial gains. Therefore, these stages of investment do not hold appeal to private capital. On the other hand, the instruments most attractive to private investors (moving and launching) are only available after earlier facilitation has completed its work.

Chiapello and Knoll (2020) analyze this issue within a broader historical context of financialization and welfare governance. Their main argument is that Social Finance and Impact Investing are not politically neutral innovations. They emerge at three historical transformations: the financialization of capitalist enterprises, the neoliberal restructuring of public management, and the shift of welfare states toward social investment models. In this context, blended finance is more than just a technical solution to a capital gap; it is a governance framework that shifts certain social functions from direct public delivery to blended public-private structures. It also integrates financial logics such as outcome measurement, leverage ratios, or market discipline into the public field.

Chiapello and Knoll are also skeptical of the leverage ratio as a measure of success. They argued that the ratio tells you how much private capital came in for each dollar of public money, but does not demonstrate the losses if the investment underperforms, or whether communities in LDCs and SIDS had actual say in how the deal was structured in the first place. This really motivates me to reflect on the indicators that we used in our project, and it seems like a limitation. 

For me, the governance question is the harder one to deal with in practice. It is not just about measuring the right things. It is about whether the people in target communities have a real role in deciding what gets measured and what counts as success. That is what I keep coming back to in our Practicum work. Building an indicator framework sounds like a technical task. But underneath it is a question about whose theory of change we are trying to validate, and that is not a technical question at all.

References

Chiapello, E., & Knoll, L. (2020). Social Finance and Impact Investing. Governing Welfare in the Era of Financialization. Historical Social Research / Historische Sozialforschung, 45(3), 7–30. https://www.jstor.org/stable/26918402

Tekula, R., & Andersen, K. (2019). The Role of Government, Nonprofit, and Private Facilitation of the Impact Investing Marketplace. Public Performance & Management Review, 42(1), 142–161. https://www.jstor.org/stable/48537495

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