5 Emerging innovative and blended financing mechanisms for the agrifood sector

As reflected throughout this paper, existing public and private financing flows are not aligned to meet the scale of investment required for agrifood systems transformation, and to shift from small-scale projects and pilots to financing the sector on a much larger scale. In response, a growing range of innovative mechanisms have emerged to mobilize additional resources, improve access to finance, reduce investment risk, and incentivize social and environmental outcomes.

Reflecting the SOFI 2024 report,⁷⁹ innovative finance is used to refer to an instrument or initiative with at least one of the following characteristics: developed in recent years; adapted to meet new purposes; newly applied to the agrifood sector; or involves new actors or combinations of instruments.

While some funds associated with innovative financing are quite large, the overall value of these mechanisms remains small relative to the scale of resources needed, and the total volume of ODA funding for the sector. Further, the scale of private finance mobilized is still extremely modest. Nevertheless, experience and lessons from the emerging range and diversity of innovative financing mechanisms provide an excellent foundation for creating a new ecosystem of financing for agrifood systems, with the potential for substantially scaling up the deployment of private capital into the sector. At the same time, there must be clear-eyed realism about the extent to which private finance can substitute the public finance needed for public good outcomes. Additional public investment in public goods, such as infrastructure, is often essential to attract private capital.

The United Nations Food Systems Summit in 2021 played an important role in advancing global discussions on financing for agrifood systems transformation. It convened a wide range of stakeholders (governments, DFIs, private sector actors and civil society organizations, etc.) to assess financing needs and identify solutions to close persistent investment gaps. Through its Action Tracks and associated dialogues, the Summit generated a substantial body of analytical and policy-oriented work, highlighting not only the scale of required investment but also the limitations of traditional public financing approaches. In doing so, UNFSS helped to elevate the importance of innovative financing mechanisms as critical tools to mobilize resources at scale. The post- Summit process has sustained this momentum through coalitions and national pathways that continue to refine financing strategies, with a growing emphasis on integrated approaches that address structural barriers such as risk perception, access to capital, and institutional capacity constraints, helping to position innovative and blended finance at the centre of efforts to accelerate sustainable and inclusive agrifood systems transformation.

There are also a range of networks and alliances focused on innovations for agrifood systems financing (see Box 8).

5.1 Examples of innovative financing mechanisms and funds

As illustrated in

Table 5, there is a rapidly expanding wide range of innovative financing mechanisms and funds serving the agrifood sector. Many funds or initiatives combine several different financing mechanisms, making a simple categorisation difficult. The examples given are largely drawn from: (i) the Blended Finance Task Force’s “Better Finance, Better Food” report (see link in box 6); (ii) the GDPRD and Shamba Centre report “Unleashing the Catalytic Power of Donor Financing to Achieve Sustainable Development Goal 2” (see here); and the SOFI 2024 report. The table is meant to be illustrative and not comprehensive.

The examples show that a diverse range of mechanisms are increasingly being deployed to raise private and public capital, de-risk investments (which is related to raising capital), create incentives for sustainable practices, pay for environmental services, improve access to finance for SMEs, and provide the technical assistance needed for bankable and commercially viable operations. What makes financing innovative is not a specific mechanism, but rather how mechanisms are integrated and the formation of new partnerships between financing and delivery entities.

The Blended Finance Task Force’s 2020 Better Finance, Better Food case study report provides a broad-based review of financing mechanisms for the agrifood systems available at the time. Case studies of innovative financing initiatives can also be found in the joint GDPRD and Shamba Centre Report and the SOFI 2024 report. More recently, the 2025 GDPRD White Paper on “Financing Agrifood Systems for People, Planet and Prosperity” provided a list of innovative approaches that demonstrate significant potential for scalability.⁸⁰

These initiatives include pioneering initiatives which have successfully brokered significant private sector engagement in agrifood systems transformation, new generation of blended financing funds for agrifood systems, as well as insurance schemes and other data-related analysis tools and platforms.

Table 5: Description and examples of innovative financing mechanisms*

• This table provides an overview of selected financing mechanisms and related investment approaches. For a more comprehensive discussion of scalable financing solutions, see Financing Agrifood Systems for People, Planet and Prosperity (GDPRD White Paper, 2026), Section 6.

5.2 An emerging agrifood systems financing ecosystem

Financing sustainable and equitable development of the agrifood sector is arguably more difficult than for most other sectors, due to the complexity of risk factors and the high costs required to serve the large numbers of smallholders and SMEs involved. Many of these smallholders and SMEs have limited managerial and technological capabilities, limited assets, and poor access to financial, business and advisory services. Further, the agrifood sector has highly complex dynamics in terms of public and private goods and market externalities. The centrality of food security for social and political stability and the very large numbers of poor people employed in the agrifood sector of LICs and MICs also creates high levels of political economic complexity and sensitivity.

In this context, effective financing requires a highly interconnected and coordinated network of systems, entities and processes. This includes creating incentives for sustainable practices and investment, raising capital, managing complex risk dynamics, brokering blended financing mechanisms, connecting financing with new business models and improved value chain functioning, providing “last mile” financial services, optimising fintech services, and matching financial services with the necessary technical assistance for enterprises to operate profitably.

Looking across the diverse range of emerging innovative financing initiatives, all these different elements are being considered and put in place to varying degrees by various initiatives, trusts and organizations. However, in terms of establishing a fully functional “ecosystem” capable of achieving impact at scale, efforts are still in the early stages. Success over the longer-term will require system-wide thinking, learning and coordination, which requires investment. Large numbers of individual and fragmented innovative financing initiatives could be counterproductive, leading to the same criticisms and problems traditional donors face, particularly at the national and local levels. For the whole ecosystem to function effectively, the right scale of effort and investment is needed across all the different functions and processes.

Figure 11 illustrates this emerging financing ecosystem, and emerging issues and ways forward are discussed below and in Section 6. The centre of the figure illustrates financing structures from raising finance to assembling it, which involves both different sources of finance and integrating different financial mechanisms, often done through blended finance or other types of funds. This assembled finance is then used to provide finance for small-scale producers and SMEs, often through specialised intermediary financing institutions, which need to be connected with technical support and value chain development. At this level, larger-scale enterprises also play a critical role in financing, including through credit for inputs and contracts for offtake (contracts set at the beginning of the growing season that guarantee purchase of production, which provides individual producers with financial stability knowing that they have a buyer for their production). The willingness of the financial sector to provide finance is partly driven by an increasing consumer-driven demand for corporate social responsibility, transparency, and accountability, and to avoid reputational risk. The left of the diagram illustrates the critical role that an enabling environment for finance plays both domestically and internationally, and also illustrates the emergence of networks to support learning and innovation around financing agrifood systems.

Figure 11: Illustration of key elements of an agrifood systems financing ecosystem*

• Source: Authors’ own.

5.3 Reflections on the state of innovative financing

The number of innovative and blended financing mechanisms has expanded rapidly over the last decade. There is currently no substantial meta-level monitoring or evaluation of this field. In that context, based on existing reports, available data and interviews, the following reflections are offered for further discussion.

(1) The scale of private sector finance mobilized remains modest, relative to the scale of the challenges and public sector financing.

(2) A wide diversity of new funds and initiatives have been established by IFIs, private sector companies and not-for-profit development organisations. These are forging new partnerships between different actors.

(3) Private sector engagement in financing these initiatives appears to be mainly from HICs/international corporations.

(4) Most initiatives engaging private sector finance are targeted to higher potential areas and sectors where risks are lower and operating costs are more manageable.

(5) While many of these initiatives have their own comprehensive monitoring and reporting mechanisms, there remains a significant gap in understanding collective lessons learned and overall impact.

(6) Many initiatives are relatively new, which means that their impact and long-term sustainability is still to be fully proven.

(7) While blended finance is a term being used to cover many of the emerging initiatives/funds, there is a very diverse range of financial instruments being employed.

(8) Connecting the raising of finance with “last mile” financial access and technical support for smallholders and SMEs is critical to success and is a key component of many initiatives; however, this has significant costs requiring public financial support.

(9) For impact and longer-term scaling, the financing mechanism needs to relate to effective and efficient value chain development on one end, and a demand for meeting and reporting on environmental and social responsibility principles and objectives, at the other.

(10) There is often a knowledge and understanding gap between actors and organisations of the finance sector and those of the agrifood sector. Intermediaries who understand both and can broker innovative solutions and viable deals are critical.

(11) There is a rapidly growing level of experience and lessons from innovative financing for agrifood systems; however, this remains fragmented, and poorly synthesised and shared.