Mainstreaming Blended Finance in Climate-Smart Agriculture: Complementarity, Modality, and Proximity

Blended finance has emerged as a novel alternative to financing the agricultural sector, which is often riddled with risks and uncertainties. However, investors and financiers are yet to consider blending as the preferred mechanism. Blended finance has not thus attained the status of a mainstream product. The extant literature indicates the problems related to actor moral preferences, but it does not sufficiently explain the mainstreaming issue. This study bridges this gap in the literature by considering the theoretical lens of governance, actor moral preferences, and institutional complexity. The case study of a climate-smart agriculture project, the Integrated Fish Farming in Odisha, India, demonstrates that actors have some reservations regarding blended finance implementation. While local banks are hesitant to embrace blended finance due to procedural restrictions, the implementing agency finds the incentive structure unappealing and feels overloaded due to frequent monitoring. On the other hand, actors collaborate owing to role complementarities and proximity. Recognizing and internalizing actor role complementarities and proximities can help promote blended finance mainstreaming.