What is Social Finance or Impact Investment?

Businesses of all kinds are increasingly seeking more commercial-style investment, such as loans (taking on debt) or equity (issuing shares).

Conventionally, this sort of investment may be provided by banks, venture capitalists, and others set up to deliver a financial return. Investment institutions, banks and the financial markets are critical to the economic models of most countries around the world. Investors in social enterprise and inclusive businesses may be conventional, profit-motivated investors, including banks.

Investment for Inclusive and Sustainable Businesses

More recently and even more since the financial crisis over a decade ago, many people in countries around the world are now developing approaches to direct finance or investment towards more inclusive and sustainable business. This may still take the form of loans or debt, equity, or equity-like finance. But this comes with a greater consideration of the social and environmental consequences of the investment and sometimes even with an explicit social motivation alongside or on top of the financial motive.

Social Finance and Impact Investment

This type of financing may be called ‘social finance’ or ‘impact investment’. These are related terms and overlap, just like terms like social enterprise and inclusive business. Like the businesses in which they invest – these investors may also have their own social or environmental mission and objectives.

Microfinance and co-operative finance are often established models in many countries. But over the last decade or so, new social or impact investment initiatives and funds have emerged around the world.

The Global Impact Investing Network (GIIN) defines impact investments as “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.”

Impact Economies

Another group, the Global Steering Group for Impact Investment (GSG), was established in 2015 with a mission to drive real impact that improves lives and the planet by innovating, agitating and orchestrating the advance towards impact economies. It currently covers 33 countries and brings together impact leaders from the worlds of finance, business, government and philanthropy. This is all about directing capital to address the social and environmental challenges we face.

Optional task – 20 minutes

This Good Finance (UK) guide to types of social investment provides details of all the different kinds of finance available. Read this guide to understand more about each of the products.

Questions to Consider

• What is the situation in your country?
• Is social investment well known?
• Are there a number of emerging impact investment institutions and funds?
• Are social enterprises and inclusive businesses struggling to seek finance?
• How many of the products from the Good Finance guide are familiar to you?
• How many are available in your country?
• Are there others you think might work well and why?

Optional further learning

For more information on the types of social financing tools available, see the following guides. While not all of these tools are available in every country, since social investment is a relatively new field, these guides provide a useful overview of different financing options and the relative pros and cons.

ILO guide to social finance in South Africa

AVPN guide to the Social Investment Landscape in Asia