4.2.2. Provide Concessional Capital, Including First Loss


Blended capital is the combination of concessional funding (usually public or philanthropic funds) with impact or full-return private capital in a way which lowers the overall funding cost, or conversely, increases the yield for private capital. It can directly change the risk-return equation. Since the “concessional” capital requires a lower (sometimes zero) return, a higher return can be paid by the borrower to the private for-profit finance provider. Thus, the private finance provider is incentivized at the same or lower overall cost to the borrower (Source: Mobilizing Private Finance for Development: A Comprehensive Introduction). Concessional capital may also include grants that take the first loss on an investment if it loses money—protecting other investors—to catalyze the participation of private investors.


  1. Cash flow uncertainty
  2. Exchange rate risk
  3. Interest rate risk
  4. Potential for higher inflation
  5. Unpredictable fiscal policy
  6. Off-take risks associated with target sector/region
  7. Production costs associated with target sector/region
  8. Rate of return on lending in target sector/region
  9. Ability of borrowers to show formal registration
  10. Ability to file/record a security interest on movable property pledged as collateral
  11. Ability to file/record a security interest on real estate pledged as collateral
  12. Ability to have commercial disputes resolved in a timely manner
  13. Ability to resolve bankruptcies in a timely manner
  14. Access to reliable credit information on borrowers
  15. Appropriate capital to meet borrower needs


One of the most immediate and direct ways to induce finance providers to extend financing is through provisions of blended capital; by offering concessional capital, USAID can decrease the cost of capital for providers, create a higher risk-return equation, and thereby catalyze capital in development.


Blending capital is still relatively new. Until recently, providing concessional funds was considered a subsidy which would distort markets and financial decisions – but that perception is changing; blended capital may also distort the amount of funding necessary and potentially waste funds


“Blended capital is essentially a provision of a subsidy in the cost of financing to enable investments which otherwise would not happen. As such, determining the least amount of the subsidy needed to complete the transaction is critical.” (Source: Mobilizing Private Finance for Development: A Comprehensive Introduction).

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