By John Karuitha

Introduction

Impact investing relates to the use of corporate principles to generate environmental, social and governance(ESG) gains over and above financial goals. Indeed, the involvement of private enterprises in solving social problems would complement the efforts of philanthropists and the state. The rise to prominence of hybrid organisations that balance doing social good and making money first developed around the idea of corporate social responsibility (CSR) (Billis and Rochester 2020). The critique of CSR was that it served as a a public relations exercise that delivered minimal social and environmental impact. To guard against the drawbacks of CSR, impact investing aims at generating quantifiable and sustainable ESG benefits. Specifically, impact
investing seeks to increase the quality or quantity (or both) social outcomes beyond what would otherwise have occurred without the investment (Brest and Born 2013). Nonetheless, striking this balance is easier said than done. The concerns in the literature relating to impact investing revolve around assessing impact and whether or not it is possible to simultaneously achieve social impact and risk adjusted market-rate financial returns (Bugg-Levine and Emerson 2011).

In this article, I examine impact investing in Africa from the perspective of microfinance (MF). Specifically, I examine the opportunity for sourcing finance in Africa to supplement donations from the west and local state subsidies. MF has been the bedrock of financial inclusion in poor communities, especially with the success of the Grameen Bank in Bangladesh. Critically, most financial intermediaries do not avail financial services to the poor who are often dispersed in remote, rural areas, and often lack adequate collateral and credit history(Kodongo and Kendi 2013). Offering financial services to these financially excluded people is a clear case of
impact investing as mainstream markets may not offer them these services.

The initial MF model mostly relied on donations and state subsidies, with major donors being USAID and the Ford Foundation. Microfinance institutions (MFIs) following this approach were mainly NGOs focused primarily of offering financial services to the financially excluded, with little regard for profitability and
The accessibility and use of financial services has changed with the rise of Fintech, especially mobile money. Commercial banks and other financial intermediaries can now reach people in remote locations without setting up physical branches. Still, a significant proportion of people are unable to use these services due to the aforementioned constraints. Financial sustainability. Critics noted that this financing approach masked internal inefficiencies in MFIs and
crowded out alternative, financially sustainable commercial providers of financial services (Kota 2007).

The rise of neo-liberalism after the cold war led to a gradual shift in the financing model for MFIs. Increasingly, donors and governments have reduced their support for MFIs (see figure 1).

1

financial sustainability. Critics noted that this financing approach masked internal inefficiencies in MFIs and
crowded out alternative, financially sustainable commercial providers of financial services (Kota 2007). The
rise of neo-liberalism after the cold war led to a gradual shift in the financing model for MFIs. Increasingly,
donors and governments have reduced their support for MFIs (see figure 1).