Financing for Inclusive Business

Innovations to meet the SDG investment gap and other financing considerations for entrepreneurs

Taking a critical look at the role of blended finance in agriculture — an emerging learning agenda

Taking a critical look at the role of blended finance in agriculture — an emerging learning agenda

Blended finance has and will continue to be critical in closing the USD $150 billion annual financing gap for agri-SMEs, but scaling its impact on the sector requires a deep understanding of how it fits best

In the Spring of 2018, when SAFIN (the Smallholder and Agri-SME Finance and Investment Network) joined hands with the OECD on a "deep dive" on blended finance and agriculture, I was struck by the mix of enthusiasm and scepticism that this triggered among network partners. While some of us were not immune from the hype around the concept that was spreading in the development finance community, several people pointed out that there was nothing new there, and others were sceptical about the relevance of mainstream definitions of blending to "our" sector.

Panellists at OECD
A group of panellists at the launch of the SAFIN/OECD deep dive on blended finance and agriculture in Paris on 16 January 2019 (from the left: Brian Milder, CSAF, Aliyu Abdulhameed, NIRSAL, Bettina Prato, SAFIN/IFAD, Gwendolyn Yu, BNP Paribas, and Tanja Havemann, Clarmondial). Photo Credit: SAFIN/OECD

Since its inception, SAFIN has been motivated to find ways to accelerate progress in meeting the financing gap for agri-SMEs and small farms in developing countries—the latter gap (for small farms only) estimated by the Initiative on Smallholder Finance in 2016 to be around USD 150 billion a year. In this context, our first foray into blended finance came with the opportunity to co-sponsor a study on blended finance in African agriculture in 2017 with the African Development Bank, Alliance for a Green Revolution in Africa (AGRA), and DFID. According to the Dalberg team preparing the report—Blended Finance Tools to Catalyze Investment in Agricultural Value Chains: An Initial Toolbox—blended finance "offers a tantalising prospect of mobilising a substantial amount of the capital needed to support agricultural transformation." The report argued, among other things, the following:

  • Agri-food value chains offer exciting business opportunities in many parts of Africa (and indeed, also elsewhere).
  • These opportunities cannot be realised without a massive mobilisation of private finance.
  • While mobilisation requires action on many fronts, ways to better manage investment risk within financing structures and approaches are needed. Blending covers a range of ways to do precisely that.

The Dalberg report offered elements of a practical "toolbox" for blended initiatives to mobilise finance for agricultural value chains in Africa, drawing upon experiences that appeared successful at least in meeting their financing objectives. At the same time, it cautioned that designing blended finance interventions is "slow, difficult and expensive," that coordination among actors is a key challenge, that market distortion effects can occur, and that a narrow focus on financing matters often prevails, delinked from efforts to address underlying market and policy issues.

After the launch of the SAFIN/OECD deep dive last January in Paris, we built off of the Dalberg report’s conclusions by taking a broader look at the global landscape of blended finance and agriculture with a new report—Blended finance for agriculture—prepared by Tanja Havemann of Clarmondial. The report confirmed the existence of a generic case for blending in the sector, but it cautioned that this needs to be made anew in each context and against specific market failures and risks. It also confirmed the existence of a variety of blended finance approaches in the sector—many of them hardly "innovations"—corresponding to the many roles that development finance can play with respect to commercial finance, value chain finance, or other sources of capital such as farmers' savings. The report proposed the below taxonomy of instruments and structures of blended finance in the sector.

blended finance graphic
Note: * Donor (public sector) engagement is a requirement in blended finance structures, additional capital may be mobilised from private investors and others. (1) Note that this category may also include others, such as direct investments through lending platforms. (2) Foundations: this references their concessionary activities, this includes corporate foundations. (3) A range of standard instruments can be used directly or combined with public funds, or used with other instruments, in a blended finance structure or transaction. Source: Blended Finance for Agriculture report

Many approaches to the use of blended finance in the sector (such as blended funds, matching grants, guarantees, and others) have been in use for several years. Among the most "innovative" areas where blending is deployed is the development of securities, which are associated particularly with "green" investments in agriculture, forestry, or other forms of land use, and often sponsored by the Multilateral Development Banks or by private or cooperative banks like BNP Paribas and Rabobank. Also, the emergence of de-risking structures linking public and private capital with a holistic menu of solutions, targeting at the same time finance and value chain coordination is quite innovative. One example of this is the Nigeria Incentive-based Risk-sharing System for Agricultural Lending (NIRSAL), which aims both to de-risk financial investments and to facilitate agribusiness development. It does this with five pillars working simultaneously: a $300 million risk sharing facility, a $30 million insurance facility, a $60 million technical assistance facility, a $10 million holistic bank rating mechanism, and a $100 million mechanism encouraging and rewarding banks for building their capabilities for lending in agriculture. While blending with donor capital was key for this initiative at seed and pilot/testing stage, the model is built for gradual transition to commercial sustainability, which makes it an outlier in blended initiatives in the sector.

Going forward, we envision a deeper analysis of some of these innovative experiences, as well as of some of the more traditional ones. We are particularly interested in experiences that involve national development finance institutions, because of their critical role in local market development, which is in turn critical to address the underlying issues necessitating blended finance as a short-term solution to start with. That said, we remain mindful of challenges and limitations, including those from the perspective of development impact—as outlined in a recent Oxfam paper. To begin with, there are definitional and boundary issues, as much finance flowing in agriculture is value chain based or self-finance, the role of national finance providers is poorly documented, and much international blending that goes to rural SMEs is categorised as "banking and financial inclusion" or "green finance" rather than under agriculture. Secondly, there are major issues around data availability constraining the analysis of evidence on blended finance. Thirdly, it is not clear that blended finance solutions are regularly adopted on the basis of rigorous analyses of specific market failures and consideration of alternatives.

We look forward to continuing this work to understand whether blended finance has a role to play, and on what terms, on access to finance for agri-SMEs and small farms.

Additional Resources:

Inflection Point: Unlocking growth in the era of farmer finance

Accountability deficit? Assessing the effectiveness of private finance blending in ensuring that small-scale farmers are not left behind

Bettina Prato
Bettina Prato currently serves as Senior Coordinator of the Smallholder and Agri-SME Finance and Investment Network (SAFIN) led by the International Fund for Agricultural Development (IFAD), where she is also Senior Global Engagement Specialist. She is a political scientist with over two decades of international experience in policy engagement, strategic planning, and research, spanning academia, the think tank world, and the UN system. Her academic work has focused primarily on the political mobilisation of experiences of violence associated with protracted conflict and trauma, while her professional life has focused on responsible investment, social empowerment and policy engagement for inclusive rural transformation. Most recently, she has been actively engaged in debates within the development finance community on private sector mobilisation, including the role of blended finance. She is an Italian national and holds a PhD in Political Science from the University of California at Berkeley.


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Inclusive Business Action Network
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A visual summary of the key challenges entrepreneurs need to consider when it comes to financing for inclusive business. Learn more about these aspects by reading this sixth edition of the newly developed online magazine on inclusive…



As Braganza explains, finance is fickle. He offers four simple recommendations for how the inclusive business world can keep finance flowing its way—giving SMEs their time in the sun—in a volatility-uncertainty-complexity-ambiguity (VUCA) world.

Royston Braganza

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Financing the SDGs: from the big picture funding gap to the little details that entrepreneurs want to know

Achieving the Sustainable Development Goals will require the mobilisation of a lot more resources than the sector currently has invested today. Learn what financial innovators and entrepreneurs are doing to bridge the investment gap and help inclusive business entrepreneurs survive and thrive.

Dana Gulley

What is blended finance and why should inclusive business entrepreneurs care?

Bartz-Zuccala gives us the download on blended finance and shares examples of how this innovative funding mechanism has unlocked private capital towards achieving the SDGs. Continued private and public sector collaboration is needed to scale blended finance, she says.

Opening the financing spigot on SDG3 — health and well-being

Hornberger and Imtiazuddin share details about the estimated gap in financing our SDG3 global health targets—$134 billion annualy and rising to $371 billion annually by 2030—as well as reasons for the gap and a suggested path forward.

Taking a critical look at the role of blended finance in agriculture — an emerging learning agenda

Prato shares the work that SAFIN has embarked on, in partnership with OECD, to understand what role blended finance can play in mobilising private finance for agri-SME investments.

Decentralised energy unlocks opportunity, the right financing unlocks decentralised energy

For SELCO, success means more people at the base of the pyramid have access to decentralised energy—an intervention that can move them several rungs up the social ladder. This requires hard-earned trust from the customer and partnerships with banks to unlock the right financing.

Finding the sweet spot in the combination of public and commercial capital

Berbers discusses AlphaMundi’s approach to impact investing and shares trends she has observed as the sector has evolved—from the growth in gender-lens investing to the gap in debt financing options for companies that are too big for microfinance but too small for banking loans.

Smart power solutions company benefits from aligned impact, donor and investor interests

Zola Electric is delivering smart power solutions to both commercial and residential customers across Africa. With business goals that are aligned to their impact goals, managing donor and investor interests is made easier.

Finance opportunity knocking: more inclusive investors and more impact-driven inclusive businesses means growth for the sector

Yogendran and Prakash share how impact investors have expanded their practices to better support inclusive businesses, while awareness is growing for businesses to better demonstrate their impact—leading to synergy and opportunity for growth in the sector.

Growing the SME ecosystem in Africa through training, seed funding, and strategic partnerships

Ugochukwu explains why grant funding is essential for start-up entrepreneurs—creating opportunity for them to turn their ideas into reality before their businesses are complex enough for equity investments and without burdening them with debt.

Getting investment-ready: considerations for early-stage entrepreneurs

Lobo reminds inclusive business entrepreneurs that they must work towards becoming sustainable—and to do so, he shares advice on getting investment-ready, considering the capital structure of the business, and navigating relationships with donors and investors.

Saving the lives of the rich and the urban poor through cross-subsidisation

Giwa-Tubosun shares her views on the importance of running a capital-efficient business that can stand on its own. She believes that through a mix of cross-subsidisation and donor money for specific purposes, like expanding services, one can build a sustainable business.

Nigerian social enterprise weighs in on benefits and drawbacks of grants and venture capital

Adebiyi has built his company without the help of loans because, in his words, his company doesn’t have the balance sheets needed to interact with banks. Instead, donor money, which serves as “patient capital,” has allowed the company to develop at the right pace.

In Your Words

Entrepreneurs and people representing the inclusive business ecosystem offer a snapshot into their personal thoughts on impact finance and other things that relate to inclusive business.