How to use blended finance to address growing global health needs

Global spending on health reached $9 trillion in 2020, a “new high,” according to the World Health Organization. But with multiple ongoing crises, climate change, and the impact of COVID-19 on budgets, everyone’s looking at ways to raise more funding to help address increasing health needs and prepare for future threats. According to the World Bank, the pandemic and the Russian invasion of Ukraine will challenge countries’ capacities to spend on health. The bank already projects that 41 countries will have spending ability that is lower than before COVID-19, until 2027. Low-income countries will also be constrained in their investments as they pay the interest for their public debts. Three years ago, a coalition of big philanthropic foundations, multilateral agencies, and the private sector came together to launch the Health Finance Coalition. Its goal: scale blended finance solutions to address public health needs in Africa. They do this through a capital stack approach, where they look at opportunities in raising resources from different types of capital, such as private sector resources and concessional loans from development banks and development finance institutions. Devex spoke with Colleen Connell, the coalition’s managing director, and Martin Edlund, its executive director and head of Malaria No More, about how to scale up blended finance for health — which at present lags behind other sectors. The conversation below has been edited for length and clarity. Can you give an example of how you’re using blended finance to address public health challenges in Africa? Connell: Probably one of the great examples to talk about is the Transform Health Fund, which was announced at the Africa Leaders Summit in December. And that is a partnership between Health Finance Coalition and AfricInvest, a large private equity [firm] in Africa. [The] fund … is focused on primary health care and supply chain, but it's also focused on bringing different types of investors together. Edlund: We've got more commercial investors, and we announced a number of the investors in the fund back in December. … Philips and Merck and the [International Finance Corporation] and U.S. [International Development Finance Corporation] are involved, and some of those have higher return expectations and some of them are much more concessional, they really just want to see the impact. And so they're willing to take much lower returns. Impact investors, the Swedish, Canadian, and U.K. governments, are in the fund as well. “One of the key learnings that we have … is that you've really got to pick the right problems where private capital can be applied.” --— Martin Edlund, executive director, Health Finance Coalition How are you transforming supply chains with this financing? Connell: One of the realities of COVID is that people stayed home more and they're looking for supply chain solutions that are more kind of direct to consumer. None of the investments have happened in the supply chain side yet, but the type of pipeline companies that we're looking at are those that are extending reach not just to consumers in urban areas, but also consumers in rural areas. So we're looking at companies that have different procurement platforms so that products can reach the more peri-urban and rural areas. We're also looking at companies that work with retail pharmacies. So how do you help influence retail pharmacies to carry higher quality medicine or to also provide services, or have kind of actual locations further outside of the urban area? So those are some of the ways that we're looking to kind of transform the supply chain. What are the other ways you have used blended financing? Edlund: [The Transform Health Fund is] the second structure we've created through the Health Finance Coalition. The first one was something called the Open Doors Africa Private Health Initiative. ODAPHI is the acronym we made up. And that was actually a direct response to COVID. It was a lending program, providing guarantees to front-line clinics that were distressed during COVID and giving them crucial capital at the moment that they needed to keep their doors open and keep providing service. And so that's something we did with the U.S. Development Finance Corporation, with Rockefeller and Skoll Foundations, with Ray Chambers, our founder’s foundation. So it's another good example of bringing philanthropic money and DFI money together to meet an urgent need on the front lines. Prior to creating the Health Finance Coalition, we [Malaria No More] also did a blended structure, it’s called the Regional Malaria Elimination Initiative, [or] RMEI. It was a $187 million facility that was housed at the Inter-American Development Bank. It was really focused on how do we give critical capital and capacity to countries in Central America trying to eliminate malaria. And so the blended part of this was we were able to get countries to make commitments for their on-budget spending, so country annual budgets. We were able to incentivize countries to use a portion of their Inter-American Development Bank loan envelopes to fund these activities. And then we brought about $35 million in philanthropic catalytic capital to the table to reward countries for meeting certain milestones. So there was some incentive-based financing and to really make it worth their while to spend their own resources on these objectives. That targeted seven countries in Central America and the Caribbean. And that's been in operation since 2017. How important is blended finance now in the global health space? Connell: I think it's critical. … There are not enough resources. And so we do need to find creative opportunities and structures to bring in some additional resources. And at times, it may be helping to create kind of a pathway to seeing how that engagement can work. We’re working on both sides of the financing, we're helping to raise the resources, but we're also helping to craft those new opportunities to kind of entice the resources in. So one of the areas of work that the Health Finance Coalition works on is kind of [deal] construction. So we work with companies in Africa that are looking for scaling funding, and we help them kind of strengthen their risk-return profiles, help them strengthen their business case or their strategic expansion. And as part of that, we help look at OK … maybe you're a fully grant-funded organization right now, but you need some investment capital to really reach your expansion milestone. So how do we help you think about that transition out of grant capital into more impact-style investments. But at times, as you're looking at a capital structure, it might be difficult to find the pathway for a more traditional impact investor. And so then we look at, OK, how can we use grant capital or sometimes what's called first-loss capital to entice an investor into an opportunity? Edlund: One thing to add here is just that one of the challenges — one of the rate-limiting factors for all this — is a lot of people who traditionally work in global health, even global health financing, don't have the skills, backgrounds, and relationships to work on the blended finance side. And so I think this is a new area for the sector. There's been a lot of talk, frankly, a lot of hype that has been deflated around impact investing, innovative finance, [and] blended finance. And I think one of the key learnings that we have in the Health Finance Coalition work is that you've really got to pick the right problems where private capital can be applied, you've got to develop the right structures to actually make it work for all the parties — for the investees and the investors. And in order to do that, you need teams that have the right skills and backgrounds who know how to structure and develop these programs, and then ultimately to have the right relationships. Before we did the ODAPHI program, USAID, and the U.S. DFC hadn't done any co-investments and this was the first opportunity where they co-invested. They actually are both investors in the Transform Health Fund as well. So it's a second example of them coming together. And as you look around the world, many regions [and] many donor countries have both aid agencies and development finance institutions. And so I think there's a real opportunity to kind of bring those threads together, where they've mostly been operating in parallel.