The finance ministry is currently exploring the prospect of enabling financial institutions to raise capital through blended finance instruments.
Blended financing is a strategy that combines development finance with private sector investments to generate more funding for emerging markets and developing countries.
In this podcast, businessline’s Nabodita Ganguly speaks to Rohit Arora, CEO and Co-founder of Biz2Credit & Biz2X. They discuss the concept of blended financing and its implications for sustainable development and the energy sector.
Arora explains that blended financing aims to provide capital at a lower cost and with different structures to support development projects in countries that lack sufficient local capital. By leveraging private sector investments and implementing credit guarantee programs, emerging markets can attract more funding and create deeper local capital markets.
The conversation also highlights the relationship between blended financing and sustainable development goals. Blended finance plays a crucial role in financing infrastructure projects, such as electric vehicles (EVs) and green energy initiatives, which require significant upfront investments. The discussion emphasizes the need for long-term, affordable capital to support the development of clean energy infrastructure and technologies.
They further discuss the importance of blended financing in decarbonizing the energy sector. It is emphasized that without blended financing, countries like India cannot kick-start the clean energy sector due to the massive upfront investments required. Blended financing enables impactful projects by fostering partnerships between the public and private sectors, multilateral agencies, and long-term investors like insurance companies.
The popularity of blended financing is growing worldwide, with various countries showing interest in adopting this approach. Countries like the United States and the European Union are exploring blended financing options to accelerate the transition to clean energy. In India, the government’s proposal for blended financing aims to support the decarbonization of the country’s energy sector, which is heavily reliant on fossil fuels.
However, there are potential challenges associated with blended financing. Oxfam’s report raises concerns about preferential treatment given to donors’ own private sector firms, which may undermine the effectiveness of blended financing. Over-reliance on contractors from donor countries can lead to suboptimal project outcomes and cost overruns.
Despite these challenges, blended financing is crucial for bridging the gap between developed and developing countries. It enables access to affordable capital for sustainable development initiatives, stimulates economic growth, and promotes the adoption of clean energy technologies. While the gap between developed and developing countries may persist, blended financing offers a pathway to address it by attracting investments and fostering partnerships that drive sustainable development. Listen in.