Progress in our core impact areas – inclusive finance, sustainable food, and clean water – demands more than business as usual. Blended finance funds are an innovative solution that unites public, private and philanthropic capital in a force for good.
Its most inventive mechanism? What’s known as the ‘first-loss tranche’ where certain investors agree to absorb potential losses, making the investment more attractive to private investors. This enables a catalytic effect, bringing in more capital to high-impact sectors that might otherwise be deemed too risky.
- Greater good together – Public, private and philanthropic entities unite their capital in a force for good
- Attracts more investors – By balancing risk and return, blended finance mobilises both institutional and private capital
- Increases fund strength – Diverse investor profiles bring different expertise, strengthening fund resilience
How it works
One of the biggest hurdles in impact investing is aligning investors with different expectations and risk profiles. Some prioritise financial security, while others are willing to take more risk for greater impact. At Incofin, we unite these diverse stakeholders together in blended funds that respect these differences while enabling capital to flow where it’s needed most.
Risk mitigation:
First-loss providers absorb potential setbacks, securing returns for senior investors
Diverse return expectations:
Different investors receive payouts at various stages
Amplified impact:
Private sector investors are mobilised to invest in social and environmental solutions
For example, development finance institutions bring expertise in managing risks in emerging markets and influencing policymakers, while corporates offer industry-specific knowledge and action-driven execution. NGOs provide on-the-ground insights and community engagement, ensuring investments meet real needs.
We value Incofin’s ability to bring together investors with different profiles, creating a strong, impactful fund ownership structure.
David GrolleauCFO, Danone Communities
The catalytic role the Swiss Government played in providing a first-loss tranche allowed us to attract more private investors and significantly scale impact.
Thierry D. BuchsSenior Advisor, Swiss Agency for Development and Cooperation (SDC)
What enabled us to trust Incofin was their local emerging markets expertise and ability to offer diversification – across regions and small-scale products. This diversification mitigates risks. They also attracted technical assistance early on and built a robust pipeline of rigourously vetted projects. This allowed us to commit confidently at an early stage, reducing barriers for new investors.
Nadia GuivelDirector, Food Security and Water Investments, US International Development Finance Corporation (DFC)
Blended finance in action
In our nutrition fund , the US government provided a grant to the Incofin Foundation. Instead of expecting a financial return, gains from the grant are reinvested into a dedicated share class of the fund, absorbing risks and aligning capital deployment with sustainable development goals.
The impact:
- Mission-driven capital deployment
- Long-term legacy through reinvestment
- Market transformation by catalysing further investments
