What exactly is “blended finance,” and how does it differ from traditional finance or impact investing?
Blended finance is an integrated financing model that brings together public, philanthropic, and private capital to enable investment in areas with social or environmental value that would struggle to secure funding otherwise. It differs from impact investing in that it focuses on designing financial structures that reduce risk for private investors and incentivise their participation.
Why does Israel need blended finance now?
The post–October 7 reality highlights the need for innovative financing mechanisms that can drive recovery and growth—particularly in the periphery and in real economy sectors. Blended finance mobilizes substantial private capital, strengthens industries and medium-sized businesses, and combines social and environmental benefits with economic growth.
Who are the key actors in blended finance, and what does each contribute?
Philanthropy brings deep knowledge of social and environmental needs, impact-measurement capabilities, catalytic capital, and grants for technical assistance and capacity-building;
Government sets national priorities, removes regulatory barriers, provides guarantees and incentives, and defines the desired outcomes;
Institutional investors provide substantial long-term capital and bring the expertise to screen and assess investments based on their likelihood of success;
The private sector contributes innovation, strong execution capacity, and practical know-how in project development and investment management.
What is “catalytic capital,” and how does it function within a fund structure?
Catalytic capital refers to investment that is willing to bear higher risk or accept below-market returns in order to enable the participation of additional investors. Examples include providing a first-loss tranche or offering subordinated loans—both of which protect private capital by absorbing losses first. This structure reduces perceived risk and allows projects to move forward.
Why is philanthropy considered a key actor if it has relatively small capital resources?
Philanthropy plays a central role because it can provide concessional funding and invest in project development and capacity-building. Although it provides smaller capital volumes than institutional investors, it serves as a key enabler that unlocks large-scale participation from institutional and private investors. In addition, philanthropy brings deep experience in identifying high-value social and environmental needs and helps shape the objectives that address them.
What role do institutional investors play in blended finance?
Institutional investors provide substantial capital and help create long-term stability in the local market. However, to ensure their participation, dedicated structures are needed to reduce risk, clearly define expected returns, and enable them to invest in medium-sized projects that are currently inaccessible.
Why should the government use blended finance instead of traditional grants?
Blended finance enables the government to leverage every shekel multiple times, significantly increasing the overall volume of investment. The model also ensures that investments are made with clear monitoring of measurable, tangible results. The government benefits from the private sector’s capabilities in risk assessment and execution, without needing to expand its grant budget.
Which sectors in Israel are most suitable for blended finance?
The sectors identified as having strong potential include manufacturing, medium-sized businesses, green infrastructure, real estate, and agriculture. Each has a clear market failure, alongside the opportunity to generate economic and social–environmental value.
How is the social or environmental success of a blended-finance fund measured?
By setting clear Key Performance Indicators (KPIs) in advance—for example: growth of small and medium-sized businesses in the periphery; the share of investment directed to the periphery; the number of quality jobs created; or the volume of emissions reduced. Measurement must be simple, reliable, and agreed upon by all partners from the outset so that it can serve as an effective management tool.
What are the main challenges preventing blended finance from developing in Israel?
The main barriers are regulatory and operational constraints, a lack of coordination between government ministries, limited experience of collaboration among philanthropy, government, and private investors, and insufficient familiarity with blended-finance models across stakeholders. Addressing these barriers is a prerequisite for establishing blended-finance funds in Israel.