How investors can balance risk, return and impact to spark positive change

Investing in the financial landscape

Another way to invest in impact is to provide capital for the banks, credit unions, NGOs or non-banking financial institutions that, in turn, offer finance to microentrepreneurs and SMEs in emerging economies. This increases the pool of resources available on the ground and helps firms acquire loans they may not otherwise be able to access.

BlueOrchard is an international impact fund manager that, as part of its activities, pools resources from investors and, using specially designed tools, conducts due diligence on the credit ratings and impact of various financial institutions before allocating funds.

“The main target and objective is to fund institutions that capture segments of microentrepreneurs and SMEs,” said BlueOrchard Impact Investment Officer Gustavo Muchotrigo.

Tailoring to specific needs

Funds such as Bamboo Capital Partners cater to startups between seed and growth stages with an agile and flexible approach to tailored financing, from debt to equity. They also offer practical expertise to help their portfolio enterprises grow.

“Everything has to be connected with impact, and this is what we look for first,” said Bamboo Investment Director Jorge Farfan. “We don’t look first at the financial return. What we ask ourselves first is: Is this business solving a problem for impact? Is it providing the opportunity for people to access any specific service or basic services in areas such as energy, health or agriculture? Second, how can we measure impact?”

Aligning impact trajectory with financial returns is a specific challenge that all impact investors face.

Fostering investor networks for impact

One of the biggest challenges facing the rapidly-growing impact investment ecosystem is the gap between social enterprises on the ground and investors, often based several thousands of kilometres away. It is key for the development of the sector to proactively enhance collaboration and foster resource mobilization at the ecosystem level.

Juan David Ferreira of Latimpacto, a regional network in Latin America of impact and philanthropic investors, says fostering impact investor communities improves the efficiency and results of deploying resources from the full range of actors across the impact investment spectrum by sharing knowledge and creating connections.

“We have to understand that doing an investment or grant in Africa or Asia is not the same as in Latin America, so we have to start doing a more nuanced approach to what is useful and impactful in Latin America,” the organization’s Program Director for the Latin American and Caribbean region said.

Impact for all investors

As our EMBAs found out on their Discovery Expedition, the impact investment industry has evolved rapidly in recent years, both to meet the diverse risk-return-impact profiles of investors and to provide tailored financing and other support to social enterprises at various stages of maturity.

This evolution has put impact investment in the vanguard of changing attitudes around purpose and economic growth, showing us how private capital can create wealth and impact to address global imbalances, challenges and inequalities.

With so many professional funds and funding organizations working in different environments around the world, investors seeking to make a positive difference – not just financial returns – have never had so many options available to explore.