Abstract
As global capital shifts toward sustainability, one major challenge remains: How can we encourage private investment in high-impact projects in risky markets? Structured blended finance (SBF) is a powerful solution. SBF uses concessional capital and sophisticated tranche structuring to align the different goals of public and private investors, balancing financial return with social impact.
This paper presents a comprehensive framework for designing and modeling SBF vehicles, with a focus on credit risk, tranche calibration, portfolio diversification, cash flow design, and risk premium analysis. Monte Carlo simulations demonstrate how sensitive tranche performance is to structural parameters. A thorough analysis of the junior-senior structure and its optimal structuring is conducted. Broader discussions address challenges such as currency risk, transparency, and market scalability. The findings demystify the mechanics of blended finance and highlight its potential to transform sustainable investing in emerging and risky markets.
Read more
