Blended finance combines commercial capital with scarce concessional capital to fund socially valuable projects. I develop a mechanism-design model in which impact potential is privately known and impact effort is hidden. Concessional capital can generate additionality on two margins: by bringing otherwise unfunded projects to market, or by improving impact in projects commercial finance would already support. Under competitive commercial finance, no-loss impact finance cannot generate additionality; loss-absorbing capital is necessary. Optimal contracts use impact-contingent payments to screen high-impact projects and induce costly impact effort. At the portfolio level, both margins are governed by a common shadow value of concessional funds. The model characterizes when blended finance should operate on each margin and why mobilization is an incomplete measure of impact.