How does Blended Finance fit into ILO’s Social Finance Programme?

CTA met with Craig Churchill, Patricia Richter and Pranav Prashad from ILO. The International Labour Organization (ILO) is also interested in joining CTA in the course of driving Blended Finance for agriculture (Blending4Ag) towards sustainability.

Craig is the Chief of the ILO’s Social Finance Program, he focuses on the potential of financial services and policies to achieve social objectives. 

Patricia is currently managing the Social Finance Program’s collaboration with the Africa Agriculture and Trade Investment Fund (AATIF) looking at how positive social and environmental impacts of agricultural investments can be ensured and improved.

Pranav leads the Social Finance Program’s work on agriculture insurance and provides technical expertise on alternative distribution and mobile services.

Can you define Blended Finance with respect to ILO’s project, with a particular view on the correlation between social and blended finance?

Agricultural finance is still perceived as a high risk business. We observe this to be the case in general and in particular in the countries where ILO is implementing agri-related projects. Thus, addressing the perceived and actual risk is our entry point for engaging in the blended finance space. What does this mean? As an international agency, note: not an international finance institution, ILO brings to the table international and national expertise on sustainable development. Here, we focus on the social side of development as well as equitable growth. This technical expertise “blends” blended private and public money for increased social impact and scales sustainable finance approaches to eventually push the frontier of financial services. For example, through collaborating with a blended finance vehicle of the German government, the AATIF, we helped the Fund to establish and implement a solid social and environmental management system. In addition, we support the Fund’s partner institutions in their efforts to mitigate risks related to occupational safety and health, child labour, or community concerns over land issues all very relevant for financing smallholder schemes. Another example is our work on innovative insurance solutions where we blend our “intellectual capital” with funding from the private sector to expand the reach of affordable insurance, and with governments to help them achieve their policy objectives.

We work with the World Bank Group and USAID in creating knowledge that can be used by both the private sector implementation organisations as well as government and regulatory bodies which can help to expand agriculture financial services including insurance.

How do you think a Blended Finance approach should be addressed to upscale Financing for development in the frontier and emerging market?

Our experience tells us that each of these markets require different approaches. In frontier markets, where philanthropic capital is available and can be utilized, governments plus public money have a big role to play and blended finance is of high relevance. This is especially true for addressing actual risks in agricultural finance that can be mitigated through expanding insurance coverage. The goal for these markets would be to use blended finance instruments to reach growth beyond a certain threshold. For emerging markets, it is more important to support governments to develop facilitative policies and then utilize blended capital in growth areas.

Relevant for all stages of market development is the inclusion of sustainable finance principles very early on, in policy formulation, in monitoring and reporting requirements, and in capacity building measures across blended finance stakeholders including private and public financiers plus agricultural producers, processors, distributors, and consumers. ILO is particularly active in this area of work.

What’s your view about using Blended Finance to address issues of child labour in smallholder agriculture?

While the latest statistics show a significant reduction over the last 15 years, still 168 million children are child labourers today. Agriculture is by far the most important sector with the highest prevalence, i.e. 59% of all child labourers are found in agriculture. We are of the opinion that blended finance has a great potential to engage, especially because child labour is primarily found on smallholder family farms that face the biggest finance gap. Through inclusion of no child labour policies in blended finance instrument guidelines and making sure that progress indicators report on achievements of reduction of child labour, the public finance side can push the frontier here. It is not about condemning smallholder families but about designing blended finance instruments that consciously address an existing problem. ILO is providing technical advice to financial sector players on the inclusion of effective policies and their operationalization. Technical assistance given to value chain actors along “blended finance for ag” is most needed to build the capacity of producers, processors and the like to effectively reduce child labour. Sessions on why and how to avoid child labour in farmer field schools are one concrete example.

What about climate-smart agricultural financing? Does ILO do anything related in this area? How does a Blended Finance approach come to play in this area?

This is an exciting new area of work that we have fully embraced. The ILO Social Finance Program and the ILO Green Jobs Program work together to support the design of integrated finance packages, e.g. in the Philippines, which put forth collaboration with private and public financing partners to offer productive loans, insurance solutions, and training on good agricultural practises that make sense for smallholder farmers exposed to climate change.

Can you predict the impact of Blended Finance on sustainable agricultural development by 2030? Most especially impact on “No poverty” and “No hunger”.

The SDGs make numerous references to the role that the financial sector plays in making this world a better place. This is not only about increasing the pledges of public and private financiers. We think that the financial sector needs innovation, like blended finance and like “blending” blended finance with technical assistance on sustainable finance and sustainable agricultural practices as described above. Only if we change HOW smallholder farmers are financed will we get closer to a world without poverty and hunger.