In order to meet the SDG targets and in general to unlock incremental capital to the sectors which are usually underserved, global stakeholders have been propagating blended finance programs. Such programs generally refer to the blending of different pools of capital ranging from philanthropic funds which seek impact returns to mainstream resources demanding commercial returns. The hypothesis is that development philanthropic funds would be able to absorb the risks to make the difficult sectors "bankable" for mainstream capital.

However, in practice for blended finance programs to be successful, the blending requires to be more comprehensive than just pooling of capital. There needs to be conjoining and transfer of knowledge, technology and capabilities to make the end objective of blending work. Organizations having diverse capital pools have different unique capabilities which need to be fused to meet the needs of all the stakeholders including the borrowers in the program.

The India Covid Response Fund for Agriculture Transition is a good example to illustrate a classic blended finance program. Rabo Foundation (RF) along with two leading European foundations facilitated access to finance directly to farmer organisations (FPOs) and to other small businesses engaged in providing services to smallholder farmers. The foundations pooled in philanthropic capital to enable US Development Finance Corporation (DFC)- to set up a pari passu guarantee for three Indian lenders to run a $ 55mn financing facility. The facility has both climate and inclusive end use with a gender target. The eligible borrowers include women FPOs, technology companies digitizing farmers, food-loss prevention assets and renewable energy solutions for smallholder farmers. Further to enable the pooling of knowledge and to enhance the climate and impact reporting of the three Indian lending institutions, a third party agency has been engaged by the three foundations under a Technical Assistance (TA) program.

This structure was based on the experience and network of RF in India having previously set up similar financing programs for climate smart agriculture, agroforestry and AgriTech with collaborative global development players, Indian private sector players and international agencies like USAID. Blending in this case also incorporated the wedding of climate and carbon knowledge to the fronting commercial financial institutions and to facilitate capacities among financial institutions to invest in new high impact asset classes.

The key capability for structuring such financing structures requires complex collaboration among sectors which hitherto did not work together. The above example illustrates collaboration across continents (North America, Europe and Asia) and sectors (Public, Development and Private) to unlock climate and inclusive capital in agriculture to enhance the sustainable incomes of smallholder farmers and small agri-businesses.

When executed properly, there are clear advantages for all partners:

• The development sector players deploying grant capital and TA get to participate in larger impact financing. At the same time, they can leverage on their investments by unlocking mainstream capital many fold to achieve their development impact.
• The mainstream financing sector gets affordable risk mitigation support and can potentially discover new asset classes to increase their business along with knowledge to further climate and ESG financing which is increasingly being demanded by regulators and investors.
• The public sector and the government by participating in such structures can leverage on the flexibility and outreach of the financing institutions to positively impact climate, clean businesses and sustainable incomes for citizens which are their core objectives.

While blended finance programs can attract much needed capital for critical sectors like agriculture, health and education, the focus needs to remain to make the underlying businesses bankable as such programs are scarce and the transaction cost of setting up blended finance programs is high. Therefore, champions who can move the needle by fostering cross sectoral partnerships would be key in the expansion and deepening of the nascent blended finance industry and with it, the much needed positive impact on the smallholder community.