Canoe transport in Nepal.

Impact Investments in International Development

Photo: Jane Miller/DFID

“Impact investing” is a concept that has been gathering momentum for a few years now. It is the perfect vehicle to bring together investors, who want their money to do something more than achieving an economic return and are interested in generating a positive social or environmental impact, with international development agencies wanting to achieve their goals in poverty reduction and eradication.

In 2010, JP Morgan and the Rockefeller Foundation, in some oft-quoted research, estimated that total impact investment over the following decade could be $400bn - $1 trillion, with much of this investment in developing countries. There has been an explosion of interest in creating investments that bear the label “impact investment” since then. Although some appear to be using the label purely as a cynical marketing ploy, and many of the initiatives are merely opportunities to invest in small and medium sized business (where the social returns are the consequence of business growth), there is genuine growth in this sector too with impact investments targeted more specifically at poverty reduction.

This type of investment offers exciting opportunities for NGOs to access alternative funding sources and to build relationships with different people in order to achieve meaningful impact and work towards a shared goal of poverty eradication and sustainable livelihoods.

Why, how and what? Impact Investing and NGOs

Community training.

Photo: Russell Watkins/Department for International Development

There are various reasons that NGOs should be interested in receiving investment directly. For example, the sector is experiencing the challenge of changing expectations of some institutional funders (payment by results, for example), and the reduction in traditional funding sources. In addition, the increase in contract delivery roles, where NGOs are finding themselves in direct competition with the private sector, brings changing funding requirements.

Impact investment can be used in two main ways: to get additional money into an NGO or to transfer risk from an NGO. Some examples include:

  • Cash-flow financing: Staged payments from a grant may not match an NGO’s expenses, perhaps due to start-up expenses, or withholding of grant payments pending final audits. Impact investment enables NGOs to manage their operating costs more easily.
  • Asset financing: For an NGO that delivers physical goods, either in a humanitarian or development context, there may be advantages to warehousing these goods prior to them being used (for example, because it enables them to buy in bulk more cheaply, or because it would save time in a humanitarian emergency). Impact investment creates this flexibility through providing the cash-injection.
  • Currency management: NGOs often find themselves committed to projects where their income will be in Pounds Sterling, Euros, or US Dollars, yet their expenses will be in a different mix of currencies – some where their projects are taking place and some depending on where their staff are domiciled. Impact investments can help in mitigating the risk of currency fluctuation.
  • Development Impact Bonds: These are a way to get investors to fund work commissioned as a payment-by-result scheme: such schemes pass some or all of the uncertainty of the payment-by-results payment to the investors, as well as providing cash-flow financing. For an explanation of Impact Bonds in general, see here.

There are also services that NGOs currently provide – such as micro-finance – which could be directly funded through impact investing, and services that NGOs could provide to other organisations being funded through impact investment, for example, measuring, monitoring, or advising on impact.


While impact investing presents massive potential for NGOs, there are also some challenges which play out at an ideological and practical level. For example:

  • NGOs may not wish to borrow money – particularly when they have been campaigning for debt reform.
  • There may be a sense of distaste that someone (the impact investor) is profiting from services delivered to the poor, despite the fact that their involvement would have a positive impact.
  • There is a distrust of “high” finance among many in the development sector. Financial language can be off-putting, and many development practitioners may be unfamiliar with financial terms. Beyond this, financiers have been implicated in all sorts of activities that run counter to the principles and missions of many NGOs (e.g. funds taking Argentina to court in the US to force higher debt repayments; assertions that speculation in commodities has led to higher and more volatile food prices; financing of extractive industries, projects that displace people, businesses that ride roughshod over labour rights, etc.)
  • There is also the issue of risk aversion, with executives and boards being naturally wary of what could go wrong if they accepted investment.
  • Finally there is the question of what effect impact investing might have on traditional fundraising efforts. It is natural to ask why time and effort should be expended on getting investment capital rather than donations or grants.

These are all very real issues and must be considered carefully by any NGO considering looking for impact investment. At iforchange we recognise the importance of each of these issues, but also believe that well-structured, carefully planned and negotiated, transparent and accountable impact investments can bring important opportunities to NGOs, and contribute positively to poverty reduction. We can work in partnership with you to set up pragmatic structures that mitigate against these challenges, and enable you to access impact investment in a way that works for all your stakeholders.

Consultancy and training

iforchange can work with you in an education or training capacity to enable your organization to understand impact investments and how they might work within your organization. We also consult on the more detailed aspects of getting impact investment: understanding the risks and opportunities, what sort of impact investment is right for your organization, how to become “investment ready”, and seeking outside investment.