Making blended finance work for communities

While there have been notable positive social impacts from blended finance to date, these initiatives tend to be limited by assumptions of what finance should be and how it historically operates. In our latest report, we raise the bar and explore the transformative potential to change the system of finance through blended finance strategies that place communities at the center. ?

Blended finance – when public or philanthropic capital is provided to incentivize or catalyze additional private investment – has been used for decades to try and achieve positive social change within specific regions or demographics. However, we believe that it is an underutilized strategy for impact. Blended finance has a role to play in reframing how risk is determined, how value is measured, and whose expertise is important investment. If wielded differently, blended finance can serve to reshape the power dynamics inherent to the structures and terms of investment processes that carry embedded bias. ?

Current blended finance approaches are limited by traditional finance assumptions of growth, scale, and success metrics that may not always adequately capture impact. Blended finance deals tend to disregard unequal dynamics of power and many at times fail to recognize community expertise and decision-making mechanisms in investment design processes. This upholding of traditional financial models means that when institutional stakeholders engage in blended finance in communities that are not their own (which is the norm,), they are transferring not only funds, but an ideology and definition of success that is not necessarily aligned with community needs or ways of knowing.?

There are also instances where such blending of government’s public funds and the private sector has undermined public policy objectives once the private capital was mobilized. Governments of smaller economies that are faced with rising national debt levels often consider partnership with the private sector where development goals are disregarded. Often, the promise of short-term gains can trump long-term sustainability. For example, when the Government of Papua New Guinea re-entered a deal with a Canadian-based mining company whose license had been revoked following strong opposition from local landowners and communities.?

Public funding is a core source of blended finance capital. Arguably, the government’s role is to steward resources for the common interest of its constituents. From this perspective, blended finance models that funnel government funds toward a holistic, systemic, and place-based investment model, and through a community-governed process, can serve as a meeting ground for the more traditional (individualistically oriented) private finance with an ecosystem-driven approach of community-led systems investment grounded in place. Yet, this process requires an overhaul shift from both the capital holders and community members of roles in decision-making and governance and the positionality of risk. This includes asking questions such as: Who assigns value and how? What components are being derisked, and for who? And whose expertise is valued? These core questions are integral to a power analysis of investment process and to developing a truly community-centric investment model.?

If blended finance deals are truly aimed at building community wealth and wellbeing through increased community resource ownership and governance, blended finance stakeholders will need to reconsider and rebalance their role and the power that they hold in investments. This process will be challenging to achieve within the constraints of traditional finance structures and norms. Yet, the norms of finance are ones that we humans dictate. Therefore, they can be changed.?

In our latest paper, we examine ways that blended finance is currently being deployed to promote flourishing communities, and offer some new perspectives and alternative approaches to using this tool. We encourage a reframing of how finance can operate in a variety of ways including:?

1) the effective combination of development and private finance that support redistribution of power?

2) the impact outcomes that finance can support?

3) alternative ways that financial instruments can be structured?

4) innovative approaches to how transactions can be conducted, and ?

5) new ways that stakeholders in an investment can be in relationship with one another.?

Much of the wealth inequality in the world today is the direct result of historic trauma due to colonial rule. We see finance broadly, and blended finance in particular, as an avenue to address and repair the trauma of our global past. We believe a better world is possible, a world where communities can thrive through strengthened social and governance foundations, and we invite you to take a step in that direction with us – a crucial first step to lead the dynamic shift ahead.?

You can download the full report here Community-Centered Blended Finance: Towards a Transformative Approach – Criterion Institute and we will be announcing webinar dates soon. If you would like to take part in a deeper conversation around finance, justice and systemic risk, you might also want to consider registering for September’s Convergence XX. [https://www.eventbrite.com/e/convergence-xx-tickets-568187282457]?

Criterion Institute is committed to revealing and reframing intersectional gendered power dynamics within financial systems. Through this lens, some of the most innovative and inspiring approaches that have surfaced in our research are grounded in Indigenous ways of knowing and being, designed by and for the communities they serve. We share them here with respect and permission from the leaders we interviewed and want to be clear that we are not speaking on behalf of these communities.?

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