From off-grid solar on rooftops, to clean and quiet electric scooters, to community farms and forest conservation, the most exciting stuff in emerging markets – or anywhere, really – is happening on the ground.
And now with better data and crisper strategies, institutional and commercial investors have new visibility into opportunities to generate sustainable returns by supporting resilience and prosperity for billions of households. Trillions of dollars in annual spending and economic growth are on the table.
Emerging market fund managers like Elevar Equity, LeapFrog Investments, Accion and Acumen have deployed billions of dollars of investor capital into companies serving the vast low- to moderate-income “mass market.” Expanding mobile access and data capabilities are proving the bankability, and loyalty, of this enormous customer segment.
Now, commercial banks and pension, insurance and sovereign wealth funds are spotting the opportunity in small business finance and economic inclusion. Allianz and Mitsubishi UJF Financial Group are investing in billion-dollar funds to support the Sustainable Development Goals and climate adaptation and mitigation in emerging economies. Commercial banks are securitizing the receivables of off-grid solar providers like Sun King and d.light, dramatically lowering these businesses’ cost of capital.
“Let’s reframe this with more positive, more opportunistic, long-term thinking,” Elevar’s Amie Patel said on an Agents of Impact call this year. “And see this segment of the market as the future.”
Educated and active, such consumers and citizens are increasingly clear about what they need to be grounded and secure living in sometimes politically and economically volatile countries and on the frontlines of climate change. Expect to hear more from them in 2025.
Some of the stories we’ll be watching:
1. Local founders and fund managers mobilize local capital
Global capital allocators have a range of excuses for overwhelmingly choosing fund managers in London, New York and San Francisco, and not Nairobi, Mumbai and Bogotá, even for funds targeted at opportunities in emerging markets.
So emerging market entrepreneurs and fund managers are turning their attention to local wealth holders and institutional investors, who have an increasing interest in keeping their capital closer to home. Impact Investing Ghana has helped Ghanaian fund managers like Injaro Investments and Mirepa Investment Advisors secure backing from local pension funds. Nigeria’s new Office for Philanthropy and Impact Investing is mobilizing private capital for startups and small businesses. Chile’s national advisory board for impact investing is engaging local family offices with impact proof points from more than a dozen funds in the country.
The ImpactAlpha team has been on the ground this year, covering impact ecosystem-building and local capital mobilization efforts:
… In Bangkok, where the Feminist Finance Forum, hosted by the UN’s Economic and Social Commission for Asia and the Pacific, connected fund managers, entrepreneurs, family offices, investors and foundations to opportunities to drive women’s financial inclusion, prosperity and leadership in Southeast Asia.
… In Buenos Aires, where the GLI Forum Latam convened to get more women in leadership roles, more gender-smart fund strategies, and more financial innovation to bring women into Latin America’s formal economy.
… In Nairobi, where Africa’s impact market makers convened to build e-mobility solutions, off-grid clean energy expansion, youth-lens investing, and engagement from institutional investors owning and managing more than $2 trillion in assets on the continent.
… And at FLII gatherings in Merida, Mexico, and San Jose, Costa Rica, where entrepreneurs, fund managers and investors are putting the Caribbean on the impact investing map. This year ImpactAlpha teamed up with Latimpacto, New Ventures, Alterna, Pro Mujer, Impaqto Capital and other regional partners to launch our first regional edition, ImpactAlpha Latin America.
- “Valuing the ‘invisible’ work of women to build resilient economies and fight climate change,” by Jessica Pothering
- “Building Africa’s pipeline of local capital for sustainable economic growth and resilience,” by Lucy Ngige
- “The push and pull of impact investing for wealthy families in Latin America,” by Dennis Price
- “In Asia-Pacific, girls just want to have funds,” by Sara Danzeo and Elena Mayer-Besting
2. Better data debunks misperceptions of risk
Fund managers and development finance institutions know the real risks of business-lending in emerging markets – but have dragged their feet on sharing data that could mobilize more private capital.
A rare data release of more than 15,000 emerging market credit transactions from the Global Emerging Markets, or GEMs, found lower-than-expected default rates. Tech-enabled fintech ventures are finding the same thing: Emerging market risk perceptions are overblown. Impact debt strategies are “very low risk,” with annual loan write-offs of just 0.4%, says Ramkumar Narayanan of research firm Tameo.
For risk-concerned investors, the question shouldn’t be whether to invest in emerging markets, but how. British International Investment has broken even on its nearly $2 billion Catalyst portfolio, which was set up 10 years ago to take more risk in order to prove new impact opportunities. Investments with the greatest impact potential, BII found, often take longer to generate returns.
- “New release of GEMs loan data debunks misperceptions of risks,” by Jessica Pothering
- “Emerging market debt investors debunk risk myths,” by Jessica Pothering
- “The returns are there for high-impact investments, they just require patience,” by Swetha Balachandran, Martina Castro and Yasemin Saltuk Lamy
3. Trillions in unmet demand lure investors down-market
Trillions of dollars are at play for companies that design products and services that people want, not just ones they need. The more than half of the global population that lives on less than $7 per day collectively spends trillions of dollars each year on products and services necessary for their livelihoods and daily life.
“Customers are looking for an economic opportunity to make their lives better and thus have more customer loyalty than customers in other markets,” Accion’s Abhishek Agrwal told ImpactAlpha.
Sizeable rounds (see d.light and Sun King), fundraises (see LeapFrog’s $808 million fourth fund) and deployments (see, Citi Social Finance’s $3 billion in transactions last year) signal that mainstream investors are awakening to the scale of the opportunity in serving low- and middle-income households.
“There is a lot of work to be done with more generic investors that are just starting their sustainability journeys,” says Borja Garcia Fernandez of Citi Social Finance. The 20-year-old group, which invests in financial and economic inclusion in more than 45 markets, is now “core to the business,” Garcia Fernandez says. “The market is maturing, and we see more interest from investors.”
- “Billions of low and middle-income consumers represent trillions in impact investment opportunities,” by Jessica Pothering
- “Protests in Kenya present an impact opportunity to invest in Africa’s youth,” by Lucy Ngige
- “A guide to investing in better livelihoods and expanded access for low-income people,” by Kathleen Mignano, Charitha Isanaka, Oreva Odu, Jana Svedova, Mitzi Perez Padilla
- “Laying bets on entrepreneurial households in industrious communities,” by Jessica Pothering
4. Commercial investors get by with a little help from their catalytic friends
Commercial investors that want to allocate more capital to emerging markets may be blocked by regulatory rules around risk calculations. They’re turning to catalytic investors to help derisk funds and deals, and eventually change investment policies and baselines.
Global financial institutions like Allianz and Mitsubishi UJF Financial Group brought catalytic investors to the table to close several billion-dollar blended finance transactions this year. New catalytic investors have stepped up as well, including Lukas Walton’s family office, Builders Vision, which came in with the Inter-American Development Bank to guarantee a “debt for nature” swap in the Bahamas; the guarantee catalyzed $300 million from Standard Chartered.
To accelerate the use of catalytic capital, new foundations and family offices have chipped in to the Catalytic Capital Consortium.
- “Private investors drive blended climate finance to record $18.3 billion,” by Jessica Pothering
- “Harnessing global momentum for catalytic capital,” by Urmi Sengupta
- “How commercial investors are streamlining blended fund structures,” by Jessica Pothering
5. Necessity is the mother of impact innovation
Capital scarcity has made emerging markets a breeding ground for innovative financial tools.
Africa-focused Acre Impact Capital notched $100 million for a fund to get critical infrastructure projects off the ground by plugging small equity-financing gaps left by import-export bank financing. Africa Eats is charting a path for Africa’s agrifood businesses to raise growth capital – by going public on the Stock Exchange of Mauritius. ProMujer and BancoSol listed gender bonds on the Argentinian and Bolivian stock exchanges. Koko Fuels, BURN Manufacturing and Bboxx are bringing down the cost of their household clean cooking technologies for customers by tapping the voluntary carbon markets as an additional revenue stream.
Watch for more innovation for private financing for climate adaptation and mitigation. This year’s COP climate and biodiversity summits made clear that there will be no flood of government funding from the Global North to the Global South.
The Nature Conservancy this year notched a couple more debt-for-nature swaps, helping the governments of Ecuador and the Bahamas refinance sovereign debt to free up capital for ecosystem conservation. “We’re expecting to be able to unlock $1 billion dollars through these six projects,” TNC’s Melissa Garvey told ImpactAlpha. “They are no longer so niche.”
- “Early growth-stage companies are going public – in Africa,” by Lucy Ngige
- “With gender bonds, Pro Mujer puts Argentina’s capital markets to work for female entrepreneurs,” by Dennis Price
- “Leveraging the carbon markets for clean cooking, climate justice and social impact,” by Jessica Pothering
6. It’s all climate investing now
Climate and gender. Climate and food. Climate and health. With the world’s most climate-vulnerable people primarily living in low- and middle-income countries, investors are putting a climate lens on economic inclusion, fintech, agtech and other impact investment categories.
In Africa, commercial impact capital is moving into climate-smart infrastructure, renewable energy and e-mobility. South African commercial lenders like Nedbank and FirstRand Bank have invested in large scale clean-energy projects. Standard Bank backed CrossBoundary Energy’s commercial and industrial solar portfolio.
LeapFrog Investments and Indian small business lender Northern Arc are both in the market with first-time climate funds. British International Investment and Symbiotics teamed up to help financial institutions build out green loan products to households and small businesses.
Because women are disproportionately impacted by climate change, an increasing number of fund managers, including New Energy Nexus and Circulate Capital in Asia, Ecosystem Enterprise Fund and Regenera Ventures in Latin America, and Catalyst Fund and KawiSafi Ventures in Africa, are investing in climate solutions with a gender lens. Check out ImpactAlpha’s database of more than three dozen Climate + Gender investment funds.
- “Voices of women and Indigenous leaders push ‘the Finance COP’ toward a just transition,” Agents of Impact podcast
- “Blending finance for India’s green transition,” by Shefali Anand
- “When it comes to moving capital to climate-vulnerable nations, impact investors have the models,” by Jessica Pothering
