A Guide to the Different Forms of Impact-backed Finance
by Marta Maretich, Chief Editor @mmmaretich floating market scene

Impact investors have put capital behind mission-driven finance providers since the earliest days of the social investing movement. Now the industry has grown and diversified to offer a wide range of finance provision models and approaches for investors to back.


Microcredit was one of the earliest forms of social impact finance and it remains one of the best known. The idea of lending as a way to improve the lot of the poor goes back to the origins of finance, but its modern version was crystallized in the ‘70’s when early advocates like Muhammad Yunus began to experiment with using finance provision as a tool to lift communities out of poverty.

Microcredit involves making small loans available to poor people, especially those traditionally excluded from access to bank loans, through programmes designed to meet their particular needs and circumstances. Loans are usually small and short-term. Collateral is often replaced by a system of collective guarantee groups whose members are mutually responsible for ensuring that loans are repaid. Alternatively, borrowers may find one or two personal guarantors. Often these are respected local community leaders.

Microcredit is designed to give borrowers an alternative to traditional informal forms of credit such as moneylenders, pawnshops, loans from friends and relatives. Crucially, it’s designed to keep vulnerable borrowers out of the clutches of exploitative lenders, such as loan sharks.

In important ways, microcredit is the mother of the diversified social investing sector we see today. Many of today’s leading social investors, including Ashoka and Acción, cut their financial teeth on microlending, using philanthropic money to establish lending programmes as a way to further their social missions. Microlending sowed the seeds for what has become an explosion of social investing innovation as more and more organizations turn to finance provision as a way to extend their reach and multiply their impact.


The term microfinance can refer to a range of financial services including loans, credit, savings, insurance, money transfers, remittances and other financial products.

In the field of social investing, these services have traditionally been targeted at poor and low-income communities, often in emerging markets, with the aim of making them affordable for people who don’t have access to mainstream providers. Many microfinance institutions have developed their models to combine philanthropic support with finance, providing capacity building grants, training and market-building activities along with capital and credit.

According a recent GIIN/JP Morgan survey, this picture of microfinance is still fairly accurate, but it is changing fast. Increasingly, for-profit finance providers are entering the sector in places like India and sub-Saharan Africa and the practice of microfinance is being rolled out in to serve customers in developed countries, too. This suggests that the microfinance model is both flexible and sustainable, and that it can be adapted to encourage a variety of beneficial outcomes in many different contexts.   

Microfinance is not without its critics. There are those who feel that it threatens traditional philanthropy and fails to recognize the complex causes of poverty.  Recent years have seen cases of fraud in the microfinance world: in 2011 an international scandal in the Indian microfinance market threatened to discredit the burgeoning industry. All this has led to calls for better regulation by national governments and sparked efforts by the social investing sector to establish standards for responsible microfinance practice.

Nonetheless microfinance has seen a real boom in the years since early adopters began to branch out beyond microlending and there are signs the industry is maturing. The Microfinance Information Exchange (MIX), on online a platform, now collects and validates standard financial, operational, product, client and social performance data from institutions across the globe.

Meanwhile, microfinance continues to gain popularity and attract new players to the marketplace with commercial banks like Citi now getting involved. This makes sense, since some of social finance's greatest success stories are now coming out of the microfinance sector in the form of a string of profitable exits for impact investors like  Bamboo Finance, Triodos and Lok Capital.

Growth Finance

Just as microlending led to microfinance, microfinance has paved the way for what might be called growth finance. In growth finance, providers offer financial services resembling those available through mainstream financial providers to customers in underserved markets. For example they may make bigger, longer-term personal loans or provide commercial credit facilities to growing businesses. In each case, services are structured in a way that makes them accessible and affordable to the client base.

Growth finance recognizes the fact that certain market sectors, especially those in poor communities and emerging economies, still don’t have access to mainstream finance even when they rise above the rock-bottom base of the pyramid. While microfinance is well equipped to meet the needs of the very poor, growth finance offers a way to support individuals and communities as they increase in prosperity and build more robust economies. 

Growth finance also offers a way to extend vital financial services to impact businesses as they scale up and face the challenges of what’s been identified as the “pioneer gap”—the tricky mid-stage of growth where philanthropic financial support dries up and mainstream support remains out of reach. Recognizing this, many active microfinance institutions are extending their services to offer growth finance options to their markets. For example, seasoned social lender Root Capital is now preparing to offer more loans as well as larger, longer-term loans and other services to meet the changing needs of their rural client base. 

The goal of impact is, of course, to build businesses and markets that are robust enough to one day attract finance from mainstream providers. Recent exits offer some evidence that this is already happening: Leapfrog,  an impact investor in financial services companies in Africa, recently sold its stake in the Ghanaian company Express Life to FTSE 100 company Prudential. 

This exit is another promising sign that the impact model can deliver, yet there is still much work to be done before all global markets have access to finance through mainstream providers—and some may never get there. For this reason, impact investors continue to play a key role in capitalizing businesses that offer the right  kind of financial services for developing markets and underserved communities. But what does the future hold for impact investing in financial service providers?

To find out, see part three of this series: The Future of Investable Social Finance. Or read part one, Why Finance is (And Always Has Been) an Important Sector for Impact Investing.

Browse financial sector impact deals.

Like to see more articles like this one? Subscribe to Maximpact's monthly newsletter

Copyright: siwasasil / 123RF Stock Photo On May 22, 2014 in Financial Services, Impact investing, Trends in impact investing.


Accion Acumen affordable student finance agricultural lender Agriculture Algae industry innovations alleviating the student debt crisis ANDE BCorp best twitter hashtags Biomimicry blended value investing definition Brazilian Social Enterprise Bridges Ventures Cartier Women's Initiative Awards Charmian Gooch CleanEdge Cleantech Cleantech Group Climate change and impact investing Climate Change and social investing cloud computing Credit Suisse Crowdfunding deal listing platform Deloitte Deutsche Bank Development finance Development of the impact investing sector disruptive technologies Dr Markus Freiburg Eco & Green edtech trends Education for All education investing opportunities Ellinor Dienst Emerging Markets ESG Entologics ESG ESG definition Ethex Ethical Finance Ethical investing definition European Investment Fund for Impact Investing European Investment Fund Impact Investing Financial Services financing forestry projects forestry forestry deals forestry investing projects Fund managers Funding SMEs G8 G8 report on social impact investing gender lens investing George Watson German social entrepreneurs Global Learning Exchange Global Partnership for Education Global reporting initiative Global response to IPCC report Global Witness Grameen Bank Green finance Green Transition scoreboard Hazel Henderson healthcare soultions HiiL how to write a business plan HydroMentia IGNIA IIPC IIRC Impact impact advisors impact investing Impact Investing 2.0 Report Impact investing and climate change Impact investing and corruption Impact investing and data impact investing and forestry impact investing and healthcare impact investing and millenials Impact Investing and Ocean preservation impact investing and philanthropy Impact investing business schools impact investing community Impact investing definition impact investing exits impact investing expertise Impact Investing Financial Products impact investing financial service providers impact investing funders impact investing in 2013 impact investing in africa Impact Investing in developing countries Impact investing in emerging markets Impact Investing in Finance Impact Investing in India impact investing influencers to follow Impact investing policy Impact Investing Policy Collaborative Impact investing research Impact Investing Trends impact investment Impact Invseting in the USA impact metrics impact projects or ventures ImpactAssets Innovation Innovation and biomimicry innovative finance in education Innovative financing models for education Insect protien Interview investing for impact IPCC IPCC climate change reports IPCC report IRIS Jay Kimmelman Jed Emerson Jim O'Neill Leadership in Impact Investing legal structures managing an impact portfolio managing and reporting impact investing data market infrastructure Maude Barlow Maximpact deals Metallotek microcredit Microfinance microlending must follow Twitter feeds for impact investing My World digital survey results Namita Banka new financial approaches new forestry investing projects new forms of philanthropy New social financing model non-financial reporting Ocean Conservation Oceans Conservation Pax World Investments Philanthropy Poverty alleviation through education Pricing social value Private investment in Education Publicly traded companies in impact portfilios Rainbow Trust Rethink Education room for growth Root Capital Rosemary Addis Sanitation and impact investing Sanitation in India SanKalp Awards Saving Natural Resources Sector Learning Sector-based investing Services for social investors Sir Ronald Cohen SMSE finance socai impact bonds social and financial metrics in impact invseting Social benefit business social benefit finance Social Entrepreneurs Social Finance social impact Social impact bonds Social Impact Investing Taskforce social investing Social investing deals social investing infographic Social Investing Taskforce Social lending social metrics social stock exchange SRI Steve Falci supporting education in the developing world Sustainabile fisheries Sustainability Policy sustainable forestry sustainable investing Sustainable investing and climate change Sustainable investing deals Sustainable invsesting in water Sustainable mining The future of impact investing the World Toilet Association Tim Freundlich Tom Holland Tony Elumelu Transcarbon trends in impact investing Triodos Triple Bottom Line Investing User Groups Virginie Issumo Water for poor communities Water remediation water sector investments Water transportation Water treatment wealth advisors what is blended value investing what is impact investing What is Maximpact Deals? What is Microfinance what is social investing women angel investors Women Entrepreneurs women in impact women in impact investing women's empowerment World Economic Forum Adriana Marina Agri-business Agriculture Agro-processing Aissa Dione Alan Hurt Algal Bioremediation alternative economic opportunities Alterra Animana Anne Masinja Arthur Wood artisan Arzu Studio Hope Ashoka Attila von Unruh AZADI Bahar Gidwani Banka BioLoo biodiverse forestry projects Biological toilets Biomimicry Biomimicry resources bio-technology bio-waste blended value investing blended value investing definition Books Bornholm Bright Green Island business services for impact investing Ceres Circle of Blue Clean Edge Cleantech Climate change climate change and forestry climate change fund Clint Wilder collecting community and social development in South Africa community development Community Development Investing Connie Duckworth Conscious Getaways for 2013 Cornelius Pietzner Corporate sustainability Corruption crowdfunding crowdfunding definition CSR CSRHub Cynthia Figge Cynthia Koenig Data Dave Wreford David Corson-Knowles Denis Hayes Different kinds of social finance disadvantaged communities Dr Guy Hutton Eco green EcoBasalt education education and social investing effects of climate change on forestry Emerging markets Empowering women Equitable Origin Ernst and Young ESG ESG definition Ethical investing definition Fans inspired by whale's fins FASE female impact finance professionals financing forestry projects finding impact investing funding Food crisis forest investment forestry forestry deals forestry impact investing Foundations impact investors Francine LeFrak François Rozwadowski Funding for impact G8 Taksforce on Social Impact Investing gender lens centered philanthropy gender lens investing gifts that make a difference GIIRS Global Impact Investing Rating System (GIIRS) Global reporting initiative Global Reporting Initiative (GRI) green building Green carpet challenge green gift guides Green Investing leaders Green Technology Greenpop Hazel Henderson healthcare Helping the unbanked High net worth individuals holiday season how to find impact finance How to fins impact investing deals? IIXAsia impacact measurement impact allocation impact economy Impact funding options Impact Intermediaries Impact investing impact investing and education impact investing and venture capital impact investing Asia Impact investing challenges impact investing community impact investing consultants impact investing consulting impact investing deals Impact investing definition Impact Investing education impact investing for small investors impact investing for sustainable forestry Impact Investing in Biomimicry impact investing in education impact investing in forestry Impact investing in healthcare impact investing in justice Impact Investing in Natural Resources impact investing in the water sector Impact investing in water impact investing infographic impact investing leaders impact investing MBA impact investing network impact investing opportunities impact investing platform Impact Investing Policy impact investing processionals impact investing services impact investing targeting women impact investing Twitter influencer impact investing weekly deals Impact Investment impact investment fund impact investment opportunities impact investment portfolios impact investments impact investng Impact investors Impact landscape indigenous women and working capital infographic Infrastructure Innovative financing solutions Innovative social impact financing inonvative financing models for education intermediaries InVenture investing in education investing in water Investing opportunity investing with a gender lens investment firms investing in women investment fund IPCC report IPCC report and forestry IPCC Summary Climate Change Report J. Carl Ganter Jack Sim Janine Benyus Jason McLennan Jed Emerson Kiva Leapfrog Investments LearnCapital LEED Light Up Africa Liivia Firth livestock exchange model Living Building Challenge mali Maude Barlow Mavia Advisory maximilian martin Maximpact Maximpact Eco Maximpact Experts Network Maximpact founder Maximpact impact opportunities Maximpact Newsstand Maximpact Team Maximpact.com measuring human impact Measuring Impact Michael Graves Microfinance microfinance institutions for women MINT mitigating deforestation mitigation of climate change Muhammed Yunus multilingual leadership teams natural resource impact investing Natural resources net positive energy Net Positive Energy + Water Conference net positive water Newsstand Omidyar Network Open Society Foundations OpenForests Playa Viva povert poverty alleviation through education premium textile designers private investment in education Project Ray public-private partnership Pyrum Innovations reclyced gifts Renewable Energy revolving credit Risk Management Role of Impact Intermediaries Root Capita Root Capital Same Sky sectors affected by climate change Senegal textile industry Senegalese textile designers silicon valley impact investing opportunities Sir Ronald Cohen Slow Money Social enterprise impact finance social enterprise South Africa social entrepreneurship in South Africa social good Social impact Social Impact Accelerator social impact and Agri-business projects Social Investing Social investing deals Social investing definitions social investing projects social investing services social media for impact investing Solar spotlightdeals SRI Stephen Filler strong liberation Sustainability sustainability consultants sustainability experts Sustainability MBA sustainable sustainable apparel supply chains sustainable forestry sustainable gifts sustainable giving sustainable global supply chains Sustainable investing definition sustainable luxury sustainable luxury and women's empowerment sustainable supply chain sustainable value creation sustainablility sustained & self-aided livelihood for women TerraMar THE BIOENERGY CAPITAL PILOT FUND The Impact Investing-CSR Opportunity The World Sanitation Financing Facility (WSFF) Tom Holland Trees for Zambia trends in impact investing Trends in social finance Triodos Triple Bottom Line Investing Uli Grabenwarter UN global survey UN Women UNDP UNIT9 Lifesaver United Succes Village Capital VIVUS Wastewater water ethics water justice Water pollution Water sector investments water security Water treatment technology weekly impact investing opportunities wellbeing of children Wello what is blended value investing what is impact investing what is social investing What is social investment What is social investment? Where can I find impact investing opportunities? WHO GIVES A CRAP winter gifts Women and sustainability Women empowerment women empowerment networking organizations women fund managers women in buiness women in business women in finance Women In Green Forum women in impact women in impact investing women investors in Asia Women Manufacturing women social entrepreneurs Women's empowerment World Bank World Bank’s Water and Sanitation Program (WSP) World Economic Forum World Toilet Day World Vision Zaha Hadid