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Financing Variety: A challenge for impact investors

Author: Bonnie Chiu, The Social Investment Consultancy (TSIC)

Barriers for social enterprises and inclusive businesses in accessing finance

Given the scale of social and environment challenges across African, Caribbean and Pacific (ACP) countries, access to finance for social enterprises and inclusive businesses – well-placed to tackle many of these challenges – becomes a priority. The first comprehensive review of the social investment landscape across Sub-Saharan Africa (SSA), published by African Venture Philanthropy Association (AVPA) in 2020,[1] found that as with many parts of the business ecosystem “the supply of social investment capital[2] in the SSA region remains significantly mismatched with demand from social enterprises and impact businesses, particularly for small and medium enterprises giving rise to the “missing middle” financing gap.”

While the AVPA study focused on Africa, anecdotal evidence from the Caribbean and Pacific regions also point to a gap. The top two challenges faced by social entrepreneurs in Jamaica relate to access to finance, specifically ongoing reliance on grant capital (57% of social entrepreneurs ranked this as a challenge) and obtaining other forms of finance (34% ranked this as a challenge).[3] In the Pacific, according to the Pacific Readiness for Investment in Social Enterprise (RISE) programme,[4] there is a need among enterprises across the Pacific islands for more flexible capital types - especially models that provide smaller investments, of less than 200,000 EUR.


In our last blog post,[5] we highlighted the considerable variety of social enterprises and inclusive businesses across ACP countries. Amid the variety, barriers to financing fall into three categories:

  1. social enterprises and inclusive businesses face the same barriers as other mainstream businesses as a result of the prevailing business and investment landscape, such as high interest rates and instability of the financial market, which may affect businesses with certain characteristics more than others (e.g. SMEs);
  2. they face the same barriers as other business but more frequently or severely due to their particular profile, characteristics or circumstances, such as the proportion of social enterprises that are led by women which is often shown to be higher than for mainstream businesses and face additional barriers to finance;
  3. particular and specific challenges linked to their social mission, governance or business models, such as restrictions on their ability to seek equity finance. These may be further complicated by challenges that are unrelated to their social mission such as their size and maturity.

At one level, socially-oriented businesses can be compared to mainstream businesses with evidence of both commonality and difference in the finance-related challenges they face. At another level, within the social sector, socially-oriented businesses vary in their needs.  Our last blog post challenged providers of social finance to recognise this variety and avoid a one-size-fits-all approach to building their investee portfolios. Yet, if we are to avoid the need for as many different financial packages as there are social enterprises and inclusive businesses, we need to identify those solutions that have a degree of replicability across businesses and ACP countries.

Conceptualising these three types of barriers, in combination with identifying key dimensions of difference (such as legal forms, income and mission alignment, growth trajectories, leadership profiles), can help to strike the balance between coming up with systemic solutions and responding to business variety.

Moving away from one-size solutions, towards right-size solutions

Addressing barriers in the first category requires business environment reforms which look at needs of enterprises more broadly, which is in line with the aim of the Investment Climate Reform (ICR) Facility, to support public and private stakeholders in ACP countries to improve their investment climate and business environment. Through this series of reports and live events, the ICR Facility is also dedicating support to the second and third categories where social enterprises and inclusive businesses face accentuated and particular challenges.

To think through the right-size solutions given variety in social enterprises and inclusive businesses, we will be exploring three areas: policy, product and process innovations that ensures that suitable finance is available.  

  1. Policy: What investment-focused policy solutions are most effective to address gaps in social finance provision? Are there opportunities for greater collaboration between international, ACP and community-based investors?
  2. Product: What product innovations exist among providers of capital to help ensure the size, term, type and conditions of social finance are most appropriate to the needs of different social enterprises and inclusive businesses?
  3. Process: What process innovations (e.g. matching between investors and investees, and decision-making, crowdfunding[6]) exist among providers of capital to help ensure a greater and fairer distribution of social finance amongst social enterprises and inclusive businesses?

As an illustration, Innovations Against Poverty provides an example of both product and process innovation. Funded by Sida (Swedish International Development Cooperation Agency) and managed by SNV in partnership with BoP Innovation Center and Inclusive Business Sweden, IAP provides investment matchmaking support for inclusive businesses to connect with impact investors[7] as well as grant finance. It works in multiple countries including Ethiopia, Uganda and Zambia, and intends to function as a risk-sharing mechanism to stimulate the development of inclusive businesses and social enterprises.

IAP, alongside other programmes that focus on inclusive businesses, have also fed into policy innovations for improving social finance provision such as the Guidelines for the Promotion of Inclusive Business which was adopted by ASEAN in September 2020 and may be rolled out elsewhere. The Guidelines include 12 policy instruments,[8] two of which relate specifically to investors - providing inclusive business investment incentives, and reducing impact investment risks.

In a webinar on 28th January, we could host a panel discussion on this topic with our speakers Bonnie Chiu (TSIC), Tara Sabre Collier (Shell Foundation), Markus Dietrich (iBAN) and Kevin Burrows (Diomedea Capital Advisors). The recording is available here.

Find out more about the on-demand technical assistance for addressing system challenges such as these provided by the ICR Facility here.


[1] avpa.africa/wp-content/uploads/2020/11/AVPA_SSA-Summary_09-11-20.pdf

[2] Social investment capital is defined as capital with the intention to generate positive, measurable social and environmental impact alongside a financial return.

[3] caribbean.britishcouncil.org/sites/default/files/bc_social_enterprise_jamaica_web.pdf

[4] www.pacificrise.org/wp-content/uploads/2020/05/1-Pacific-RISE-Completion-Report-Achievements-and-Lessons-Learned-2016-2019.pdf

[5] www.icr-facility.eu/knowledge-hub/not-one-size-fits-all

[6] Crowdfunding is also a thematic focus of ICR Facility

[7] innovationsagainstpoverty.org/investment-matchmaking-support-introducing-iaps-strategic-investments-partners/

[8] asean.org/storage/2020/09/ASEAN-IB-Promotion-Guidelines-Endorsed-at-the-52nd-AEM.pdf

The ICR Facility supported the production of this publication. It is co-funded by the European Union (EU), the Organisation of African, Caribbean and Pacific States (OACPS) under the 11th European Development Fund (EDF), the German Federal Ministry for Economic Cooperation and Development (BMZ) and the British Council. The ICR Facility is implemented by GIZ, the British Council, Expertise France, and SNV. The contents of the publication are the sole responsibility of the authors and do not necessarily reflect the views of the EU, OACPS, BMZ or of the implementing partners.