India Needs a Shift to Blended Finance In Health

Changing the Way for Health Financing

India needs to shift from the conventional models of healthcare funding to innovative funding methods, mainly Blended finance, for meeting the health challenges, according to Niti Aayog.

“India’s unique accessibility, affordability, and quality challenges can be addressed by innovative healthcare solutions. Given the size of the sector, a quick rate of adoption and the resultant scale will have an immense impact. But for this to happen, conventional modes of healthcare funding will need to be aided by innovative funding methods,” said Niti Aayog in its latest white paper called “Reimagining Healthcare in India through Blended Finance“.


A tri-sector collaboration between public, private, and philanthropic capital is thus a distinct option which could help unlock the funding challenges, the Niti Aayog said. “Blended finance could drive significant new capital flows into high-impact sectors like healthcare, while effectively leveraging private sector expertise to identify and execute developmental investment strategies,” it noted out in the white paper. The vital themes shaping healthcare delivery in the future include empowered and informed customers, flexible and adaptive operating models, non-traditional resources and partnerships, a growth and innovation mindset and a laser sharp focus on accountability, integrity, and sustainability.

The white paper looks into the principles of blended finance and explains how it can play a role within the Indian healthcare sector. It also comes up with a series of case studies that demonstrate the green shoots of new models for financing health impact.


The Niti Aayog finds that it is difficult to find wide usage of digital technology to significantly impact healthcare outcomes in India, where millions are equipped with internet connections and smart phones. Even though there are about 4,308 start-ups officially registered in the healthtech5 domain, they are unable to scale up due to multiple challengeslike regulatory roadblocks, access to appropriate capital and markets, lack of incentives to adopt innovative practices, market inefficiencies, and high barriers to entry, to name just a few, the white paper said.


Although India’s healthcare sector has grown rapidly over the last five years (Compound Annual Growth Rate of 22%)7, COVID-19 has brought to the forefront persistent challenges such as a weak health system, lack of quality infrastructure, and lack of quality service delivery to vulnerable populations. India’s healthcare spending is 3.6% of GDP, including out-of-pocket and public expenditure. The combined total government expenditure of both central and state is 1.29% of GDP. India spends the least among BRICS countries:

Since 2010, more than 110 private equity and venture capital investors have invested in the healthcare delivery space, with a transaction value of 1,275 Million dollars. Four major hospitals and diagnostics chains recently had successful initial public offerings to raise capital. But the investments and capital raised have been from established market players with a strong focus on profitability and growth and not necessarily on accessibility and affordability, the report mentioned,

Before COVID-19, it was estimated that over 500 billion dollar of private capital must be mobilized annually to meet all of India’s sustainable development goals by 2030. To address access, affordability, and quality healthcare, it is estimated that under a business-as-usual scenario 256 billion dollar would be needed by 2034 to achieve sustainable development goals related to health. “But with the adoption of new technologies and a focus on prevention and wellness, the funding requirement is estimated at 156 billion dollar. This implies that government and philanthropic funding will need to be applied even more judiciously,”: the paper said.

  • The hospital sector in India accounts for 80% of the total healthcare market. It was valued at 61.79 Billion dollar in FY17 and is expected to reach 132 Billion dollar by 2023, growing at a CAGR of 16%-17%. This indicates a growth in hospitals beds by at least 30% to ensure equitable access to healthcare for citizens in all parts of the country.
  • Health insurance contributes 20% to the non-life insurance business, making it the 2nd largest portfolio. PM-JAY, launched by the Government of India as part of the Ayushman Bharat initiative, could increase the penetration of health insurance in India from 34% to 50%16. This would, in turn, increase the demand for in-patient services.
  • The cost of production in the country’s pharmaceutical sector is around 33% lower than that of the United States and is being continually brought down further17 India has the opportunity to boost domestic manufacturing, supported by recent Government schemes with performance-linked incentives, as part of the Aatmanirbhar Bharat (Self-Reliant India) initiative
  • Many start-ups in the medical devices space need growth funding to scale up.
  • With social distancing as the new norm, telemedicine solutions are fast emerging as a convenient alternative. The market size for telemedicine in India (USD 830 million, as of 2019) is projected to increase to 5.5 billion dollar by 2025, growing at a CAGR of 31% during 2020-2519.
  • A low presence of doctors in semi-urban, rural, and remote areas has resulted in limited access to healthcare facilities for many people. Telemedicine and e-Health are considered potential solutions for addressing this lack of access, due to the extensive smartphone penetration in India and improving mobile connectivity
  • Lack of a private sector mobilization strategy and action plan
  • Low levels of coordinated participation from the government
  • High transaction costs and long timelines in structuring blended finance solution
  • Lack of transparency on blended finance activity limits its scalability
  • Regulatory Constraints in mobilizing grant capital such as CSR funds
  • The ecosystem for blended finance is underdeveloped
  • Lack of templatized models
  • Focused mandate restricts flexibility
  • Lack of openness from NGOs and CSO for availing commercial capital
  • Blended finance should be used strategically to develop sustainable domestic market systems and build the capacity of local capital market actors
  • To scale blended finance instruments further, the stakeholders involved need to go beyond bespoke structures towards larger risk-sharing arrangements and syndicate funding to High-Net-worth Individuals (HNIS) and family offices
  • To unlock private capital, enabling regulations like provision to use Corporate Social Responsibility (CSR) funds as risk capital or outcome funding could potentially scale up the use of blended finance structures
  • Creating new marketplaces like the proposed Social Stock Exchange, which could potentially list impact bonds, social bonds, debt swaps, and not just equity instruments of social enterprises, could help in narrowing down the funding gap.
  • Blended finance actors should design innovative structures that target the hardest to reach and most underserved areas
  • Improve impact management and measurement and promote transparency
  • Bring blended finance to large scale through systemic and transformational approaches

Blended finance is an approach towards financing where catalytic funding from public and philanthropic sources is utilised to mobilize additional private sector investment to realize social goals and outcomes. Blended finance is the strategic use of concessional capital and private capital in projects where the perceived risks are too high for private players to participate alone. By combining concessional and commercial capital, blended finance can achieve acceptable risk/return profiles for different types of financing partners, including private capital. Blended finance is a structuring approach that allows enterprises to invest alongside each other while achieving their different objectives: financial return, environmental/social impact, or a blend of both. Blended finance is therefore not a single instrument but rather a financial structure in which different investors with different investment priorities can participate.



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