As the world's finance ministers, business leaders, fund managers, and foundations convene in Spain for the fourth UN Conference on Financing for Development (FFD), a harsh reality looms large: We are alarmingly off-track, to the tune of $4 trillion, to meet the sustainable development goals (SDGs).

Official development assistance (ODA) has been stagnant, and there have been body blows like the reduction by about 80 percent of the American ODA budget, and the recent withdrawal by the Trump administration from the FFD4 process itself. In this environment, mobilising private capital at scale is essential to achieve the SDGs. This is where blended finance, which leverages scarce public or philanthropic capital to crowd in private funding, has emerged as a key lever. It involves the strategic use of concessional or catalytic capital to correct for market failures, de-risk private investments, and drive commercial funding into areas like climate, health, education, and gender equality. The theory is compelling. And there have been real wins — the global blended finance market has mobilised over $250 billion for emerging markets, with Asia
accounting for over 40 per cent of deals, according to Convergence. India stands out as one of the top three markets, with over $15 billion mobilised across 130- plus transactions over the last 10 years. Yet, despite the promise, blended finance is at a crossroads — and several voices have raised pointed critiques on each of its three core pillars: Impact, leverage, and returns.

First, the development additionality of many transactions remains unclear. Blended vehicles are often deployed in well-performing sectors and middleincome markets rather than in more difficult areas where capital is most urgently needed.

Second, the leverage ratios remain disappointing, particularly for deals led by multilateral development banks, which have mobilised limited funding from private sources.

Third, minimum concessionality —the principle of using only as much subsidy as necessary — is poorly defined and inconsistently applied. This creates risks of distorting markets or subsidising returns for commercial players who might have invested anyway.

It is important to note that in the Indian context, the first two concerns are mitigated. Blended finance in India has been used to fund primary education, skilling for women employment, upgrading public health facilities, tuberculosis treatment in rural areas, and climate smart agri livelihoods. It has emphasised outcome-based funding, where payments are made on the achievement of social or environmental results, using instruments like Development Impact Bonds and Returnable Grants. In short, it has strong development additionality.

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Leverage ratios, or the proportion of private capital unlocked per rupee of philanthropic spending, are also much higher in India. Technical assistance, guarantees, and other forms of support have generated leverage over five times. But blended finance still has not taken off. Despite the increasing evidence of its potential, there has been a lack of domestic capital mobilisation. There are two main reasons for this: An unnecessarily limiting regulatory architecture; and challenges of market efficiency and pipeline. Both issues need to be addressed. The Indian government has acknowledged the need for blended finance in our national Budget and G20 declaration, and launched various initiatives — viability gap funding, public-private partnership models, special purpose vehicles, and specialised financial institutions. There have been major developments at the sub-national level as well, for example the announcement of India first state-backed outcome funding programme in Madhya Pradesh.

However, there are regulatory issues that impact the ability to blend capital, and thus the need for a comprehensive roadmap to streamline relevant policies and remove specific bottlenecks. Even in this scenario, blended finance transactions have been growing in India. The criticism that they are too complex and expensive to structure is valid. And that a pipeline of bankable projects still needs to be developed, especially in areas outside climate. A growing tribe of transaction advisors and ecosystem builders has been doing just this. We have developed programmes, playbooks, and transaction templates that have brought new funders to the table. Several foundations and financial institutions are now actively exploring the
space, and many others are interested in learning more. A strong policy push and demonstration of successful transactions can create the right conditions for a thriving social capital market. The time has come for India to develop a national-level roadmap for blended finance. And for our financial sector to go beyond the usual portfolio of investment instruments (equity, debt, and grants) by using the power of innovative finance — creating better structures, incentives and strategies — for unlocking funding needed for the SDGs and become Viksit Bharat. The UN FFD conference offers a pivotal platform to reimagine blended finance for the decade ahead. As India positions itself as a leader of the Global South, it has both the need and the opportunity to pioneer a smarter, fair, and more effective approach to development finance. Getting blended finance right gives us a way to do this.