15 December 2017 | Sibonakaliso Mavuka ( Social Investment Specialist ) |
Meeting the National Development Plan’s (NDP) targets, including the eradication of poverty by 2030, will depend on the amount of resources available. A large part of these resources consist of government transfers. However, with a slowing economy, declining tax revenue and a looming downgrade, it is expected that government will have no choice but to reduce its budget for social spending in the near future. The above also holds for philanthropic funders such as foundations and other social investment vehicles, given increased economic pressure. (No quantifiable numbers are available for the South African context, but the United Nations Conference on Trade and Development has estimated the annual investment gap to fund the sustainable development goals in developing countries is around US$2.5 trillion annually.)
Such an environment calls for development funders to start exploring innovative funding models, especially ones that unlock new forms of capital that go beyond traditional grantmaking. One such source of financing includes traditional private sector capital invested in pension funds and insurers, which represent a significant supply of capital that could fund sustainable development. The levels of such private sector investment flowing to development-related social enterprises and projects remains relatively low in both South Africa and emerging markets. Translating these assets into development-compatible investment will be important in future, with the potential being greater in sectors such as education, health, climate resilience, water, sanitation and social housing.
A mechanism available to development funders that crowds-in private capital into development is Blended Finance. This concept has gained much traction internationally in recent years and refers to the strategic use of development and philanthropic funds to mobilise private capital for high-impact initiatives. Through this financing mechanism, development funders can expand the impact of their limited resources by leveraging billions of rands in capital sitting with private investors, and thus closing the substantial (local and global) development funding gap.
According to the World Economic Forum (WEF), Blended Finance consists of three main characteristics: Leverage– the use of grant funding to attract private financing into deals; Impact– investments that drive social, environmental and economic progress; and Returns– financial returns for private investors in line with real and perceived risk.
Read more info here: Blended Finance_Bringing New Opportunities to the Development Sectorv2