Blended Finance in practice - Creating jobs in Africa

“Everybody loves blended finance, but nobody wants to blend”

Blended finance is a development finance concept that aims to combine public or philanthropic capital with private investment to capitalised investment funds and projects mostly in emerging markets. It matches investors with different risk and returns appetites by allocating capital into different tiers in an investment vehicle. Although it is not a new concept, its practical applications in Africa remain limited.

One of the successful applications is the GroFin SGB Fund established in Mauritius in 2014. The fund provides finance and technical assistance to small and growing businesses in eleven African countries. The fund targets “unbankable” SGBs that cannot access finance from commercial banks due to the normal constrains, lack of collateral, credit history, or formal financial records.

These SGBs often have strong potential for growth and employment but are excluded by conventional finance. Providing debt to these SGBs is a high-risk investment and it is difficult to raise capital to fund development funds operating in this sector. The SGB Fund is one of the success stories that used blended finance as a tool to raise more capital for onward investment.

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The SGB Fund uses a four-layer capital structure designed to attract different types of investors:

Class C (Junior Equity – First Loss): Philanthropic capital committed for at least 15 years. This layer absorbs early losses and carries the highest risk.

Class B (Mezzanine Equity – Second Loss): Backed by DFIs and impact investors with a medium-term horizon and guaranteed returns of 3 – 5%.

Class A (Senior Equity – Last Loss): Private investors with low risk tolerance receive returns of 2 – 3.5%. Losses only reach this layer after Class C and B are exhausted.

Debt Instruments: Fixed income investors contribute via promissory notes with priority over all equity layers.

Technical Assistance Facility: Funder by donors.

The tiered design allocates risk in a way that makes the fund accessible to investors who would not otherwise enter the SGB finance space.

The Class C first loss layer provided the base that made the rest of the fund possible. By committing high risk capital upfront, philanthropic investors gave others the confidence to invest without the risk of absorbing early losses.

Thanks to this structure, the SGB Fund raised an additional $41 million, around 35% of its total capital, that would not have been secured without the catalytic first loss layer. This funding allowed the fund to expand its support to more SGBs and broaden its impact.

From 2014 to 2019, the SGB Fund financed 214 SGBs with total disbursements of $117 million. These firms reported an average annual employment growth rate of 6.67%, resulting in 2,019 new jobs. Of these, 707 jobs were directly attributable to the additional capital raised using blended finance, jobs that would not have existed without the tiered structure.

The SGB Fund demonstrates how blended finance, when applied effectively, can unlock private investment for high impact development outcomes.

Disclaimer: The ideas and information shared in this article are based on my experience and research, and are intended for general information only.