The government officials, business leaders and private investors gathered at Davos this week can continue their deal-making after the elite event ends on Convergence, a new online match-making platform to facilitate “blended” financing for developing countries.
Officially launched at this week's World Economic Forum, Convergence aims to expand investor networks, reduce search costs and streamline due diligence and overcome other barriers to speed completion of the often-complex deals.
Blended finance structures, which leverage public and philanthropic funds to attract private capital, have the potential to reshape global development financing and help private investors enter high-growth emerging markets.
“We are making it easier for public and private investors to pursue purpose-driven investing and find co-investors in developing countries,” Chrystia Freeland, Canada’s Minister of International Trade said at a World Economic Forum event on financing the new Sustainable Development Goals, or SDGs. She said the increase in development financing, “will in turn lead to economic growth and stability.”
The Canadian government backed Convergence, based in Toronto, with $23.5 million. Citi Foundation also provided funding. Other partners include Dalberg, the Global Development Incubator and the World Economic Forum.
Open deals won't be available on the platform until this spring, but the site already includes data on more than 150 closed deals. The organization is offering $7 million in grant funding to fund the creation of new blended finance products. Freeland said the platform hopes to list over $10 billion in deals in its first five years (see “Convergence Seeks to Blend Public and Private Investment for Global Development“).
Already, 31 investors are signed up to participate, including emerging market financiers Black Rhino and Cordiant; foundations including the Bill & Melinda Gates Foundation and the Lundin Foundation; impact investors such as Aavishkaar, Bamboo Finance, and Grassroots Business Fund; development agencies including Sweden’s SIDA, South Korea’s KOICA, and the United States’ USAID; and the governments of Ethiopia and the Netherlands. Investors can register at https://www.convergence.finance/.
“It will become much easier for investors to find high-quality transactions in emerging markets that will allow them to leverage their dollars towards greater economic, social, or environmental impact,” said Joan Larrea, Convergence's new CEO, formerly with the Overseas Private Investment Corporation.
There is growing interest in blending capital from public, private and philanthropic sources. Such layered structures are considered critical to financing the SDGs. Public investors have launched new blended finance vehicles (see, “Financing the Other 90 Percent of Smallholder Agriculture“) and models aiming to “crowd in” private capital (see, “Social Impact Incentives Aim to Tilt Businesses Toward the Needs of the Poor“).
Blended finance vehicles bring together investors with different risk tolerances and return expectations, helping bring private investors to capital-starved but often volatile sectors and markets in developing countries. Public and philanthropic funders can reduce risks for private investors with first-loss protections or loan-guarantees, or increase their returns, by providing low-interest loans. Any first losses in the Africa Agriculture and Trade Investment Fund, for example, are covered by development banks, reassuring private investors.
“As the global economy shifts, a platform like Convergence is critical to make it easier for corporations and institutional investors to invest in growing markets, while also supporting economic development around the world,” said Walt Macnee, the vice chairman of MasterCard Worldwide, who chairs Convergence's board.