Within those emerging economies, the small business owners and micro-entrepreneurs upon whom the economy relies have been significantly impaired by lockdown measures and overall economic slowdown. According to a study by the International Labour Organisation (ILO), 70% of 1,000 micro and small enterprises (MSMEs) surveyed across eight countries had to shut down operations in recent months*. In 2020 alone, over 75% of MSMEs have experienced a fall in revenues(Ibid) and an estimated 300 million jobs have been lost in the second quarter (ICSB,2020). Importantly, given that most MSMEs in developing countries are in the informal sector they are often excluded from the government aid and lending programs (International Council for Small Business).
The Covid-19 pandemic poses an additional and significant challenge to the likelihood of achieving the UN Sustainable Development Goals (SDGs) by 2030. Studies predict that poverty will increase globally, for the first time since 1990, with hundreds of millions at risk of sliding back into poverty. This in turn will have repercussions in reaching the SDGs as they are intrinsically interconnected.
The severity of the effects – declining wellbeing and increasing inequalities – will depend on how long the health crisis lasts, how quickly economies recover, and how national governments and the international community continue to react in providing support. The bottom line is that the financing gap to reach these goals is going to increase and there is a crucial role for the private sector to play. This is a call to action that must be heard. Public actors alone cannot produce the meaningful impact required to reverse the current backslide in development goals.
Blended Finance is a proven mechanism in helping to bridge financing gaps in developing countries. The term “Blended Finance” describes funding provided cooperatively by public and private sector actors. The public angle is covered generally by development finance institutions (DFIs), multilateral development banks (MDBs), and bilateral governments. The private sector participation often comes from foundations (e.g., endowments and philanthropists) and institutional investors drawn by the impact proposition and frequent presence of de-risking mechanisms such as “first loss” junior investments from the public sector as well as technical assistance and capacity building funds.
Blended Finance structures have been on the rise since the aftermath of the financial crisis in 2008 (Zappia, Maria Teresa, and Nadina Stodiek. “Blended Finance 2.0”) thanks to its specific features that enable a counter-cyclical approach, proving to be a valuable tool to group different types of public and private actors with varying risk appetites.
Blended Finance can help attract much-needed capital by creating a more palatable risk profile for private investors interested in investing in the most impacted markets but constrained by risk appetite. In addition, Blended Finance is a channel for both public and private investors to maximize their respective impact, and this collaborative approach is critical during and after the pandemic. For public investors, engaging in Blended Finance initiatives allows them to leverage their investments by attracting other funders across the multilateral and private sectors. At the same time, private investors gain access to investments with both financial return and a sustainable and measurable impact, enhanced through technical assistance and capacity building within the target investments.
By leveraging these cooperative financing structures, Blended Finance enables investment targets to develop with strong support, thus increasing their impact proposition and helping to make them more attractive for future, purely commercial investors.
There is no question that government and philanthropic aid are crucial in the short term to serve the immediate needs of at-risk and vulnerable populations. However, our experience has proven time and time again that Blended Finance can and will continue to play an important mid-to-long term function in aligning a range of financial actors behind a common goal of supporting markets in development and reaching the ambitious targets of the SDGs.
– end –
Authors: Maria Teresa Zappia, Chief Impact and Blended Finance Officer, Deputy CEO, and Valerie Harrington, Associate Fund Manager – Blended Finance Mandates
*ILO, “MSME Day 2020: the COVID-19 pandemic and its impact on small business.” International Labour Organisation, Published June 26, 2020,
***ILO; ICSB, 2020
****International Council for Small Business, “Exploring the Impact of the COVID 19 Pandemic on MSMEs,” ICSB, Published 2020
*****Zappia, Maria Teresa, and Stodiek, Nadina. “Blended Finance 2.0”. Blueorchard.Com, 2018,
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