Voice of the Market

Foundation for Blended Finance: Lessons from Upaya's Impact-Driven Model

OECD defines Blended finance as ‘the strategic use of development finance for the mobilization of additional finance towards sustainable development in developing countries.’ In essence blended finance aligns different funder's priorities and motivations into a structure that can let capital flow towards a desired outcome. This strategic leveraging of philanthropic, public, and private capital to finance projects aims to mitigate risks for private investors, attract additional funding, and amplify the impact of development efforts.

Intended outcomes should be the single most differentiator for any blended finance design. In practice though are we sure that we are designing to incentivise impact and not make it even more complicated to achieve? Availability of trustworthy data to qualify the impact is the bedrock for an effective model and sadly the most overlooked one.

In this article we examine the case of Upaya’s impact-driven model. By standardizing and benchmarking metrics of job quality for the poor, especially in emerging markets, we are slowly but surely laying the foundation to incorporate an effective blended finance structure.

Upaya’s model

In 2018, Upaya pioneered a groundbreaking approach by pooling recoverable grants from philanthropic sources, akin to a for-profit investment fund. Thanks to the support of progressive philanthropists, we are able to invest this patient capital in early-stage companies creating dignified jobs for vulnerable people in India.

With 38 investments across sectors like Waste Management, Agriculture, Rural Manufacturing, and Artisanal Industries, each dollar invested has generated threefold income for jobholders, families, and communities. What is exciting about this pool of recoverable grants is that we are building upon traditional philanthropy to deploy instruments like equity or quasi-equity to fund enterprises creating quality jobs for the poor.

This philanthropic capital is creating the evidence of returns that more finance-focused investors will need to back similar companies, those who often get left behind in typical markets based interventions. We are making markets work for the poor by making traditional philanthropy do more.

Measuring quality in employment

Upaya's mission centers on poverty alleviation through the creation of dignified jobs at scale. Aiming to break the cycle of poverty, the focus remains on providing fair wages, decent work conditions, and opportunities for upskilling, thereby enabling individuals to transition out of poverty. We validate the quality of these jobs in order to ensure our investment is genuinely pulling families out of poverty. From our founding, we have prioritized deep data collection to very specifically assess the level of impact created by the jobs in our portfolio.

Our results measurement is based on 5 key dimensions of impact- Inclusivity of the job, Income quality, support at work, benefits at work and financial resilience. With each investment our database is getting stronger, self-reliant and providing nuanced insights into the efficacy of our approach.This validation is rare data in this industry and creates opportunities to attract more capital that can be sure of the impact.

Through Upaya’s approach we have created 36,000 verified quality jobs for the poor till date, that should reach 50,000 jobs by 2025. We are now looking to build further to incentivise enterprises creating quality jobs for the poor and protect their impact as they scale from early stage to growth stage. While we’ve done this assessment for our own purposes, we now see that in a world of outcomes-based instruments, this kind of job quality data can and should be used to verify an investment’s impact.

Foundation for blended finance

Availability of standardized impact measurement to all our operations can now be leveraged seamlessly into blended finance, specifically Outcomes Based Financing (OBF) structures like the Social Success Notes (SSN), SIINC or DIBs to address SDG 1- zero poverty and SDG 8- Decent work and economic growth.

If the data collection is a core part of operations, the instrument does not need to be costly or complicated. It is important to test the fitment and complexity of these OBF instruments in solving the particular social and/or environmental issue. One needs to do a cost benefit analysis of designing and implementing a blended outcomes based structure vs traditional grants or contracting. Even with the cost of a third-party verifier – normally a requirement in OBF – an in-built and robust data collection process can minimize the complicated verification process into more of a spot check audit. An outcome payer then can dedicate more resources to the activities generating the impact, and less to the infrastructure proving it. It is our hope that this kind of existing impact data can attract more outcomes funders into the space where they can fund real impact with confidence.

Blended finance isn't a novel concept, rather an evolved paradigm. Upaya's experience underscores the importance of intent and focus on ultimate outcomes. It advocates for continuous alignment of structures to intended goals, emphasizing that intentions and dedication remain pivotal in driving impactful change.