Blended finance is an innovative financial approach that strategically combines different types of capital, typically public (development finance) or philanthropic funds, with private (commercial) capital, to fund sustainable development initiatives. Its core purpose is to "de-risk" projects and improve their risk-return profile, making them more attractive to private investors who might otherwise shy away due to high perceived risks or lower-than-market returns.

The sheer scale of financing required to achieve the UN Sustainable Development Goals (SDGs) by 2030, particularly in emerging and developing economies, far exceeds the capacity of public aid (Official Development Assistance - ODA) and philanthropic funding alone. There's a significant "funding gap" for SDGs, estimated in the trillions of dollars annually.

Many high-impact development projects, such as large-scale renewable energy plants in remote areas, sustainable agriculture initiatives with smallholder farmers, or critical water infrastructure, possess inherent risks (political, currency, regulatory, market risks) or don't offer the immediate high returns typically sought by commercial investors. Blended finance steps in to bridge this gap, leveraging limited public funds to unlock much larger sums of private capital.