October 07, 2025
Indian Economy|Development Strategy
Innovative Finance – An Underrated Space in India
By D&A Team
The Perspective of a Young Professional
When I tell people (especially those working outside the development sector) that I work in “innovative finance,” I usually get blank stares. If I add that it’s specifically blended finance advisory, the confusion doubles.
Why the confusion?
Because the market for innovative finance in India is still nascent. As of 2025, it hasn’t yet become mainstream, even though the potential is enormous.
There’s also another reason. Many senior professionals in this field are deeply immersed in its technical and analytical dimensions. They spend their time building complex models, negotiating high-profile transactions, or designing regulatory frameworks. They understand the nuance far better than I do. But sometimes, this very depth makes it harder to break things down in simple, accessible terms for someone new to the space.
As a young professional and a student heading for her master’s, I don’t claim to know everything - but perhaps I can “de-jargonise” it in a way that bridges the gap between technical complexity and everyday understanding.
So, What Is Innovative Finance?
At its heart, innovative finance is about finding creative ways to use money to solve social and environmental problems. It’s about using the full toolkit—public funding, philanthropy, private capital—and sometimes inventing new tools when existing ones don’t fit.
Blended finance, for example, is a type of innovative finance. It means “blending” different kinds of capital:
- Philanthropy – donations, CSR funds, grants, all naturally aimed at impact.
- Public money – government budgets for healthcare, education, gender equity, climate action.
- Private capital – investments that usually demand market-level returns.
The challenge is that private capital often stays away from the development sector because of “high risk, low return.” Blended finance tries to fix this by using public and philanthropic money to reduce the risks, so private investors feel more confident to step in.
An Example: Outcomes-Based Financing
In my opinion, one of the most interesting tools in this space is outcomes-based financing. In simple terms, this approach ties the release of funds to the achievement of results that are independently verified.
A practical example is the Quality Education India (QEI) Development Impact Bond. Instead of giving schools grants upfront, investors funded education service providers, and the government or donors agreed to repay them—but only if children’s learning outcomes improved measurably. This model not only ensured accountability but also attracted private investors into education, a sector usually dependent on aid or philanthropy.
My Journey into the Space
For me, it all started on the ground. At fourteen, I joined a doctor-led NGO, helping organise senior citizen care events, road safety campaigns, banana distributions in government schools, and dental hygiene drives in informal settlements. Soon after, I got involved in my school’s first community service initiative, Navasha, where we tutored children from low-income households.
I loved the work, but over time I realised volunteerism alone couldn’t solve systemic inequalities. During my internships, I began to see how finance could play a role. At an impact-focused investment management firm, I worked on evaluating startups and built a gender lens investing framework so portfolios could better track women’s participation. That’s where I learned how finance could be used for empowerment, not just profit.
When I moved into development consultancy, I saw another angle. These firms were doing high-impact work with governments and multilaterals, but much of their funding came from international foundations and foreign philanthropy. It made me wonder - why don’t we have stronger homegrown financing systems for India’s own development sector? That question stayed with me.
The Turning Point
I took a course at Ashoka University taught by Kartik Desai on impact investing and blended finance. It was the first time I saw how different types of capital—public, private, and philanthropic—could be structured together to fund outcomes at scale. The course helped me connect the dots between my social sector experiences and the possibilities of finance.
Soon after, I joined Desai & Associates. Here, I got to work on exactly what I had been searching for—innovative financing models that help bridge India’s social sector funding gap. Whether it was blended finance structures for agroecology, outcomes-based funding for female entrepreneurship, or climate finance, I began to see how these tools could move the sector beyond short-term grants to more sustainable, results-driven systems.
Why It Matters
India’s development sector faces a massive funding gap - roughly ₹14 lakh crore (about $170 billion). Traditional philanthropy and government budgets can’t fill it alone. Unless private capital is part of the equation, we’ll always be playing catch-up.
Innovative finance offers a way forward. It doesn’t replace philanthropy or public money—it multiplies their effectiveness by bringing private players to the table. Done well, it can create sustainable, large-scale impact.
For me, innovative finance isn’t just a professional path—it’s a personal mission. It ties together where I started, what I’ve learned, and where I hope to go. And if I can explain it simply, maybe more people will start to see just how powerful (and underrated) this space really is in India.