Impact Investment: A Powerful Tool in the Fight Against Poverty

Impact investing is an innovative type of investing that can greatly benefit the investor, the investee, and the community at large. Social impact and ESG (Environment, Social, and Governance) investing can be in businesses that produce environmentally friendly products, provide affordable housing, or offer education and job training to underserved communities. It can also involve investing in organizations promoting social justice, human rights, and other social issues.

The emergence of impact investment funds as a philanthropic trend dates back to the early 2000s. At the time, charitable organizations and philanthropists began experimenting with new models of investing philanthropic capital in social enterprises and initiatives. Since then, impact investing has grown in popularity among philanthropists and social impact investors. To them, it is a way to drive positive social and environmental outcomes while also generating financial returns.

The amount and diversity of capital for impact investing have increased dramatically in the past ten years, with the current impact investing market estimated to be USD 1.164 trillion.

Impact Investing in the Nonprofit World

Non-profits can now partner with donors to raise philanthropic capital to support their investments in social enterprises. The nonprofit recycles returns generated by the companies they invest in to enable new investments in the future. Impact investing allows nonprofits to blend philanthropic capital with investment capital to support larger or higher-risk social initiatives that may not otherwise be financially viable.

Tei Mukunya Oundo, Co-Founder and CEO of NatureLock, FINCA Ventures investee based in Kenya

FINCA Ventures is the impact investing arm of FINCA – a pioneer in microfinance and financial empowerment for nearly 40 years. Since 2018, FINCA Ventures has been funding small entrepreneurs deploying disruptive business models and creating new technologies to help people in their community break the cycle of poverty. To date, FINCA Ventures has invested in 25 social enterprises, impacting nearly 11 million people worldwide.

“This fund answers the two most important questions to me: will my investment make the greatest possible difference and how will I know?”

Eric Chern, FINCA Board Member and FINCA Ventures Advisor

The Role of Philanthropy in Scaling Impact Investing

Donating to impact investment funds can be a way for donors to support initiatives that create positive social and environmental impact while also generating financial returns. By doing so, donors can help to contribute to solutions that address social and environmental challenges in a more sustainable and impactful way. Donors may consider donating to charities operating impact investment funds for several reasons:

  • Greater impact. Donating to impact investment funds can support initiatives that align with their values and contribute to social and environmental causes they care about.
  • Leverage. Impact investment funds often use the donated funds to leverage additional capital from other investors, such as institutional investors or high-net-worth individuals.
  • Sustainability. Impact investment funds support sustainable business models that aim to create long-term social and environmental impact. Donors can contribute to solutions that address social and environmental challenges in a more sustainable way.
  • Financial returns. Donors may see donating to impact investment funds as a way to support initiatives aligned with their philanthropic interests while generating financial returns that can be reinvested in social enterprises and other social impact initiatives.

Impact Investing Definition

Impact investments are investments made with the intention to generate positive, measurable, social and environmental impact alongside a financial return (source: Global Impact Investing Network). In addition, impact investing is a powerful tool philanthropists can use in the fight against poverty! Individual donors play a catalytic role in mobilizing private sector investment in social impact funds. Philanthropic capital can help support the development of social impact investment funds like FINCA Ventures, ultimately leading to greater positive social and environmental outcomes.