SEBI And IFSCA Regulatory Framework For Blended Finance

• Published date: 05 December 2025
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, Fund Management/ REITs, Venture Capital, Corporate and Company Law, Contracts and Commercial Law, Securities
• Law Firm: AZB & Partners
• Author: Shagoofa Rashid Khan and Rohan Jha

Introduction

Blended finance is a structuring approach that uses catalytic capital from public or philanthropic sources to improve the risk–return profile of investments, thereby mobilizing private capital for projects that advance sustainable development. In practice, blending is most often achieved through concessional debt or equity, guarantees/risk insurance, and grant-funded technical assistance. The defining characteristics commonly referenced by standard-setters (e.g., IFC/DFI Working Group; OECD) are:

Goals / impact:	A particular transaction would utilize the blended finance structure where it aims to deliver a measurable developmental impact with targeted social, environmental, or economic outcomes.
Economic returns:	Different investors / participants with different return levels, ranging from concessional to market-rate are blended together with the aim to achieve target returns.
Catalytic public/ philanthropic support:	One or more investors / participants in the structure constitute the concessional layer (such as multilateral development banks, development finance institutions or other sovereign-linked entities) that reduces risk and/or cost thereby making it attractive for private sector capital to participate that would otherwise have not participated in the target opportunity.

Blended finance, simply put, is a mechanism to structure capital stacks to facilitate investors with different objectives to invest side-by-side yet each meeting their own risk, return, and impact goals.

Indian context

India's climate and developmental financing needs are substantial, with estimates of USD 10.1 trillion required to achieve net zero by 2070. Hence, blended finance structures could play a significant role in bringing concessional and commercial capital together to meet national priorities and sustainability objectives. Both, Securities and Exchange Board of India ("SEBI"), the securities market regulator for onshore India and International Financial Services Centres Authority ("IFSCA"), the securities market regulatory for offshore India, have taken certain measures to align their respective regulatory framework. These measures have been summarized in this article.

Blended Finance Framework: onshore India

With respect to alternative investment funds ("AIFs") set up under SEBI (Alternative Investment Funds) Regulations, 2012 ("AIF Regulations"), the issue of stacking layers of risks came to the attention of SEBI in mid-to-late 2022. In November 2022, SEBI issued its Circular 157 stating that it is examining "priority distribution waterfall" structures that have come to its attention.

In the said circular, SEBI took the...