When Blended Finance meets Impact Investing – OECD showcases BlueOrchard managed MIFA-Fund

19/02/2018 Blog

On January 29, 2018 the OECD held a conference in Paris on “Private Finance for Sustainable Development”, highlighting the important role private finance plays in achieving the goals set in the UN Sustainable Development Goals (SDGs) and the Paris Agreement.

The conference brought together leading actors from policy and practice on Blended Finance, Social Impact Investing and Green Finance discussing how to better work together to mobilize and scale up private and commercial resources for sustainable development and climate action in developing countries.

It was during this prestigious international event that the OECD launched its report on “Making Blended Finance Work for the Sustainable Development Goals”, featuring our Microfinance Initiative for Asia (MIFA) Debt Fund as the example of a blended finance structured debt fund.

Blended Finance…

Blended Finance is the strategic use of development finance for the mobilization of additional finance towards sustainable development in developing countries. It has an enormous potential to help increase the financing needed by attracting investors who would not have otherwise financed development projects as it shifts the risk-return profile of projects and demonstrates that investments in developing countries are viable. It creates thereby a market of larger volumes of commercial capital and helps to direct private and commercial investment towards underserved areas, aiming at both, generating tangible development impact and financial returns.

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…meets Impact Investing

Blended Finance comes together with impact investment (i.e. the provision of finance in order to address social and environmental needs with the explicit expectation of a measurable social, environmental, as well as financial return) in so called impact funds, which have an explicit focus on mobilizing private finance for investing in impact-relevant projects.

The Microfinance Initiative for Asia

BlueOrchard is specialized in designing and managing successful and innovative Blended Finance mandates by mobilizing its unique and extensive network. The Microfinance Initiative for Asia (MIFA) Debt Fund, established by Germany’s Federal Ministry for Economic Cooperation and Development (BMZ), Germany’s development bank (KfW), and the International Finance Corporation (IFC), is managed by BlueOrchard and represents a unique example of a blended finance structured impact fund. Created in 2012, MIFA is the first fund to exclusively focus on providing debt financing to microfinance institutions in Asia (including Central Asia) to expand their portfolio of loans to micro and small businesses. Furthermore, MIFA focuses on Tier II and Tier III institutions (i.e. early stage microfinance institutions) seeking to accelerate their capacity to reach long-term sustainability. MIFA via its Public Private Partnership (PPP) structure leverages funding provided by public sources and development finance institutions (DFIs) by attracting commercial funding of private institutional investors (e.g. pension funds, insurance companies, foundations, and family offices). Public investors include the European Union and the German government, who provide first-loss junior capital. The DFIs – KfW and IFC – are invested in mezzanine positions and fully subordinated to private commercial investors. Private investors represent 50% of the total contributed capital in MIFA.

Furthermore, MIFA provides its investees capacity-building trough a Technical Assistance program, strengthening and enhancing the investees’ staff capacity, measurement, reporting, governance, and financial management as well as assisting in developing new and refining existing products, especially in the field of renewable energy and energy efficiency.

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Conclusion

Delivering the SDGs and the Paris Agreement requires tremendous and concerted efforts on the part of the international community to raise public and private capital. As a leading global impact investor, BlueOrchard is committed to the goals set in the SDGs and the Paris Agreement and actively engaged in finding innovative and tailored solutions to today’s social and environmental challenges with like-minded investors.

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