Blended financing is a term used to describe the practice of using multiple sources of funding to achieve a common goal. In the context of sustainable NGOs, blended financing can be an effective way to combine grants, loans, and other forms of funding to support their work. Especially the inclusion of private funding and investments are of interest to organizations working with blended finance.
Sustainable NGOs are those that seek to achieve long-term social and environmental impact by working with communities to address issues such as poverty, inequality, and climate change. These organizations often face a significant funding gap, as they are not normally able to rely on typical government funding or private sector investment.
Blended financing can help bridge this gap by allowing NGOs to combine different types of funding to support their work. For example, an NGO might receive a grant to support its programs, but also take out a loan or get funding from a partner organization. This approach can help organizations achieve greater impact by teaming up with a larger network of partners.
One of the key benefits of blended financing is that it can help to reduce risk for both the NGO and its funders. By diversifying their funding sources, NGOs can reduce their dependence on any single source of funding, making them more resilient in the face of unexpected challenges. At the same time, funders can mitigate their risk by spreading their investment across multiple sources of funding.
Blended financing can also help to unlock new sources of funding for sustainable NGOs. For example, impact investors may be more likely to invest in an NGO that has a track record of successfully using blended financing to achieve its goals. Foreign donors may prefer to give to NGOs that blend financing from different reputable organizations. This can help NGOs attract new sources of funding and expand their reach.
New ways of financing sustainable development
A less talked about way of financing NGOs activities is through partnerships with private organizations. Private organizations are so-called profit-optimizing endeavors. In contrast to NGOs and non-profits, private organizations actively seek to make as large a profit off their activities as possible. It may therefore seem contradictory for these two sectors to collaborate having different objectives. Private organizations may, however, find potential in donating or investing money into NGOs that work in the same geographical area or has the same group of stakeholders.
In fact, finding a common goal is the first principle in the OECD’s 2021 ‘Blended Finance Principles’, an international guideline for working with blended financing. Here, the reason to utilize private funding in NGO activities is not just to receive the money to stop the funding gap but to find genuine areas of collaboration. Creating stable environments where peoples can take up work effectively or creating buying power among consumers are examples of areas where private organizations benefit from collaborating with NGOs. Private organizations want proper market conditions and NGOs work to sustainably build better environments for growth. What exactly is the common ground for collaboration is the first step in blending financing relations between private and nonprofit organizations.
A more experimental approach to blending business and sustainable development are initiatives that make money to directly fund NGO activities. Just like Girls Scouts who sell cookies to fund children’s skill building or school bake sells where cakes are sold so extracurricular activities can take place, NGOs can make a profit from activities that fund other initiatives, for example speaking engagements as experts in their field.
Although there are limits to NGOs earning a profit, innovative ways of blending financing are happening across the sustainable development space as organizations find new collaborators and ways to create impact. At Center for Girls, we are excited to announce our own efforts in this space very soon.
Too many cooks in the kitchen
The challenge most associated with blended financing is managing multiple sources of funding that can be complex and time-consuming and may require specialized financial expertise. Maintaining relationships with too many donors and paying too much attention to new ways of doing things may take the focus away from the main mission of the NGO.
When blending financing among too many donors NGOs may also risk having those donors give too many or differing opinions on the work to be done that it hinders decision making. There can so to speak be too many cooks in the kitchen. So blending finance is also a balancing act of creating a stable support system of collaborators without drowning in bureaucracy and discussions.
Despite these challenges, blended financing has the potential to be a powerful tool for sustainable NGOs. By combining multiple sources of funding, organizations can achieve greater impact, reduce their risk, and unlock new sources of funding. As such, it is an approach that is well worth exploring for any NGO that is committed to achieving long-term social and environmental impact.