News
By Liz Wilson, CEO of Small Foundation
What is the most effective way a foundation can show up to provide funding alongside others?
This question was at the heart of an OECD netFWD community of practice meeting on blended finance and catalytic capital, co-hosted by the Agence Française de Développement (AFD) Group, and co-funded by FMO, in Paris last week. In a room of foundations, development finance institutions (DFIs), market builders, and investors working through real case studies, what came through wasn’t a single blueprint. It was people, myself included, looking for tools and practices to navigate where philanthropy best fits.
That’s the reason this community of practice exists. Blended finance has been around for a while, but many foundations are quietly unsure where they come in and how to deploy resources effectively.
When Small Foundation first invested in IPDEV2 – the fund platform Investisseurs & Partenaires has spent twenty-five years building across sub-Saharan Africa – we came in early, as an equity investor, alongside larger and different types of investors. One question we asked ourselves was whether our investment was too small to matter. It wasn’t the right question. What mattered was that we took time to understand how we could potentially be complementary and additional to other support in place, as well as our willingness to be shaped by what we heard.
As philanthropic investors, we often spend a lot of energy asking where we belong in a capital structure – first loss, technical assistance, guarantee, equity. Those are real and necessary questions. But more important is whether we’re listening to the people building these markets, and whether we’re willing to let what we hear change how and when we deploy financial support, not just where.
Listening changes what you think your job is
Amma Lartey, CEO of Impact Investing Ghana, described building Ci Gaba – a pension-backed fund of funds now investing Ghanaian pension capital into SMEs – despite starting from some resounding ‘no’s. Seven pension funds said no in 2021. Two said maybe. When she and her team explored the nos, the answer wasn’t capital and it wasn’t policy. It was capacity: an industry that had never done this before, with no internal key performance indicator (KPI) for unlocking domestic capital, no client demand for it, and no one whose job it was to build the case.
What Ghana’s pension funds actually needed first was training, design workshops, and years of relationship-building before a single euro of catalytic capital did anything. Philanthropic and international development funding paid for pension capacity-building precisely because someone was listening closely enough to hear that the constraint wasn’t where they expected it.
Flexibility means not deciding in advance where you sit
What is needed is rarely a tidy response. Ci Gaba ended up de-risking on capital, not on return, with catalytic funders sitting alongside pensions rather than beneath them – a design that took real negotiation, including a currency disagreement that had pension funds wanting Ghanaian cedi and catalytic investors arriving in hard currency. They settled it by having the fund hedge across both, which took patience on all sides to model and agree.
David Munnich made a related point about IPDEV2: for every euro I&P puts into a fund, roughly three are raised locally, and those in turn draw in three more into SMEs – something close to a tenfold multiplication from the initial philanthropic and grant capital. But he was clear that none of it got faster with practice. Finding the right person to lead a new fund takes time. Building the team around them takes years. The instinct to productise blended finance into something repeatable is understandable, but the actual work has stayed local, slow, and specific to each market, each time.
Philanthropy has the opportunity to look at what a market at a particular moment actually needs. Small Foundation’s own experience bears this out: we went into IPDEV2 as an equity investor because that’s what the moment called for, and into Ci Gaba with junior equity in the same way. Terms, risks to consider, and the size of the investment were different every time.
The real gap is learning together
There’s still relatively little shared visibility into what’s actually working. As Farnam Bidgoli from the Children’s Investment Fund Foundation (CIFF) put it, there are plenty of handbooks on how blended finance should be done, but much less on what’s actually been deployed, what it unlocked, and what it cost. We don’t lack the theory. We lack a collective and trusted space to learn together.
None of this resolves neatly. When the room in Paris was asked where philanthropy adds the most value, the answers split hard – first loss, technical assistance, verification, convening – and there was no consensus. This was not because people disagreed but because the honest answer is: it depends. I don’t think that’s a weakness of the conversation. It’s exactly why a community of practice is so useful: providing a space to bring the question, rather than each of us operating alone.
From Small Foundation’s perspective we will keep showing up small – after all, that is what we are – but we see significant opportunities to amplify our impact by listening to and learning from our peers and the innovators we want to support. By building the shared evidence base we can leverage more effectively over time the resources at our disposal; that is the big win we all want.
