Global Impact Investing Network released research Tuesday to give impact investors interested in emerging and frontier markets more clarity about performance and strategies.
The report, "Unlocking the Potential of Frontier Finance," found that impact investors have a solid history of frontier investing, but capital flows are far short of demand for investment and the estimated $2.5 trillion capital required to achieve the United Nations' Sustainable Development Goals.
The report is based on a database of 40 frontier finance transactions, 10 interviews and a workshop discussion with 39 investors and other interested parties.
The analysis found market-rate return targets in 74% of transactions, with 87% of investments meeting or exceeding financial performance expectations. Those investments were aimed primarily at social impact objectives such as SDGs on productive work with a fair income and economic growth.
The frontier finance investments studied had small ticket sizes, with an average of $1.1 million and a median of $385,000.
The GIIN research report also offers strategies for addressing constraints to frontier finance activities that include difficulties raising and deploying capital; educational gaps across the capital supply chain; and high transaction and operating costs.
The five primary strategies in the report are:
• Unlocking grant capital to act as a derisking mechanism to individual investments and supporting the broader impact investing ecosystem.
• Testing and refining financial instruments and structures to strengthen the appropriateness of investment products.
• Expanding partnerships among investors and with other interested parties.
• Strengthening forums for investors and entrepreneurs to share ideas and lessons learned.
• Celebrating success stories.