impact investing in emerging markets via private debt
Emerging markets present a unique opportunity to achieve significant social and environmental progress while generating financial returns. Emerging and developing economies (EMDEs) are expected to see a steady growth of 4.2% in 2025. This stands in contrast to advanced economies, where growth is projected to rise gradually from 1.6% in 2023 to 1.8% in 2025 (IMF, 2024). This makes a compelling case for increased capital allocations in these regions.
FMO (Financierings-Maatschappij voor Ontwikkelingslanden) has been investing in emerging markets, including under its Loan Fund I, mobilising insitutional capital to invest in a just transition for our planet.
The Loan Fund investments are classified as private debt investments. Private debt remains the largest asset class in impact investing, accounting upto 41% of total allocation of all impact investing (as of 2019). Investing via private debt includes private financial institutions lending capital directly (to MSMEs) or indirectly (to microfinance institutions) which in turn lend to MSMEs and/or individuals thus ensuring financial inclusion across populations.
The emerging markets Loan Fund was launched in 2018, and raised almost 400 million dollars which were commited to over 50 projects in three years. Institutional investors can through this fund, invest in sustainable energy and agricultural projects and companies. The structure of this fund allows a combination of social and environmental impact that can be measures with pre-set impact KPIs set in the impact framework prior to initial investment.
The flow of institutional capital to EMs will increase access to capital across populations thus generating growth and reducing poverty. Another advantage of such funds is that Development Finance Institutions (DFI) like FMO have extenisive market knowledge and experience thus providing institutional investors the best opportunities of investment that can generate high and stable return while making social and environmental impact.
With this fund, FMO has generated over 9000 jobs and avoided more than 25,000 tons of carbon emissions while producing market-rate returns, highlighting the potential such investments hold.
Learn more about impact investing in emerging markets with private debt and this investment on the UK NAB's learning hub.
Read more about impact investing in Africa and managing FX risk on our blog.
