Beyond Grants: Why Impact Investing Matters for Development

Executive Summary

In my work across international development, NGOs, public institutions and, more recently, the impact investing ecosystem, I have repeatedly seen the same problem: organisations with strong missions often struggle to secure capital that is stable, flexible and genuinely aligned with the change they want to create. My argument is not that impact investing should replace grants, aid or public finance. It should be treated as a bounded but increasingly useful extension of the development-finance toolkit.

The shift that matters is not from “charity” to “finance” in the abstract. It is from fragmented, short-cycle funding dependence towards more deliberate combinations of grants, concessional capital, blended finance, repayable instruments and non-financial support. Market growth makes that shift visible, but market growth is not the real story. The more decisive issue is whether organisations can translate mission into credible capital strategy: a clear theory of change, realistic governance, investment readiness, fair risk allocation, and disciplined impact measurement and management (European Commission, 2026; GIIN, 2024a).

I therefore argue that impact investing becomes credible in development only under clear conditions. It must demonstrate additionality, fit the economics of the intervention, respect local ownership, handle foreign-exchange risk realistically, and subject impact claims to independent scrutiny. It must also be used selectively: some activities should remain grant-funded, while others sit in a hybrid middle ground or are appropriate for repayable capital. Used without those guardrails, impact investing risks becoming another attractive narrative. Used with them, it can widen the strategic options available to mission-driven organisations (GIIN, 2024b; OECD, 2025a).

Introduction

I have spent much of my professional life working in and around organisations whose purpose is public, social or developmental rather than purely commercial. Across NGOs, public institutions, training environments and international development programmes, I have seen a recurring pattern: organisations are rich in mission, but structurally constrained by the way they are funded. Too often, they operate from one grant cycle to the next, reshape priorities to fit donor windows, or spend disproportionate time on institutional survival rather than strategic execution.

That experience is one reason why I have become increasingly attentive to impact investing and related approaches such as venture philanthropy, catalytic capital and blended finance. I do not see them as ideological replacements for aid, philanthropy or public finance. I see them as responses to a practical problem: many organisations addressing social and environmental challenges need more varied, better-structured and more mission-aligned forms of capital than traditional funding models usually provide.

The wider financing context reinforces that view. The annual financing gap for sustainable development in developing countries remains vast, while investment in several SDG-related sectors has come under pressure. Private philanthropy remains important, but modest relative to the scale of the challenge, which means that grants and public budgets alone cannot carry the whole burden (OECD, 2026; UNCTAD, 2024). In that context, the serious question is not whether impact investing is “the future”. It is when, where and under what conditions it becomes a realistic complement for organisations that need to fund operations, strengthen delivery and scale impact without abandoning purpose (European Commission, 2026; GIIN, 2024a).

From fundraising logic to capital strategy

The most useful conceptual shift for me has been moving from the language of “finding funds” to the language of capital strategy. This is more than semantics. It changes how an organisation diagnoses its needs. In many NGOs and public-interest organisations, the funding conversation begins with a donor window, a proposal, or a compliance opportunity. A capital-strategy approach begins elsewhere: with the problem being solved, the theory of change, the maturity of the organisation, the risk involved, and the kind of financial and non-financial support actually required.

That leads to a different question. Instead of asking only “Where do we get money?”, the better question is: “What kind of capital fits this intervention, at this stage, on what terms, and under what governance?” This is much closer to the way impact investors, venture philanthropists and blended-finance practitioners think in practice (OECD, 2014; OECD, 2025a). It also explains why capital alone is rarely the answer. Many mission-driven organisations are socially relevant but not yet investment-ready. They may have a compelling mission yet still lack the governance, financial modelling, evidence discipline or due-diligence readiness that would make external capital useful rather than destabilising (European Commission, 2026; Nachyła & Justo, 2024).

That distinction has been visible in my own trajectory. Earlier in my work with development organisations and NGOs, including at Sinergias, I often saw strong teams spending enormous effort adapting to donor formats rather than strengthening the underlying delivery model. Later, in public-sector work supporting environmental management processes with local governments in Peru, it became clear that the bottleneck was not only money. It was the interaction between financing constraints, institutional capability, and implementation design. More recently, in the Dutch impact-investing ecosystem, I saw the same problem in a different language: investor interest is not enough if the pipeline is weak, the intermediation layer is thin, or the evidence base is not credible.

When is impact capital genuinely needed?

This is where additionality becomes the core test. A persuasive case for impact investing cannot rest on preference alone. If commercial finance, public finance or grants can already achieve the same result on appropriate terms, then there is no strong reason to insert a more complex structure. OECD’s 2025 blended finance guidance is explicit on this point: additionality should be assessed, documented and publicly disclosed, because without it development finance risks misallocation, crowding out, and loss of credibility (OECD, 2025a).

In practical terms, I find it useful to think of three forms of additionality. First, there is financial additionality: capital would not otherwise be available on suitable terms. Second, there is development additionality: the intervention reaches outcomes that would otherwise not occur. Third, there is value additionality: the investor or intermediary contributes expertise, networks, governance support, or technical assistance that materially strengthens the intervention (OECD, 2025a; Vega, Torre Olmo, & de la Cuesta-González, 2025).

That framework matters because it turns impact investing into a decision rule rather than a general enthusiasm. It forces one to ask: what is being added here that a conventional grant, loan or budget line would not already provide? In my view, that is the point at which impact investing becomes serious. Without additionality, it may still be finance, but it is not compelling development finance.

Where impact investing fits — and where it does not

A second condition for rigour is being clear about what should and should not be financed through investor-led structures. I do not argue that all social challenges should become investable, nor that all mission-driven organisations should move towards repayable capital. The development field includes public goods, rights-based services and humanitarian functions whose value cannot and should not be reduced to cash-flow logic. In those areas, grants and public finance remain indispensable. Treating that as a limitation would be a mistake. It is simply an acknowledgement that not every form of public value is investable, and not every attempt to make it so improves outcomes.

For practical purposes, I find it helpful to distinguish three broad categories. The first includes grant-dependent activities: core advocacy, rights protection, emergency response and basic public-interest services in low-resource settings. The second includes hybrid organisations that may need grants, technical assistance and concessional or blended instruments before they can absorb repayable capital responsibly. The third includes revenue-generating social ventures or service models that may be suitable for debt, equity, guarantees or outcome-linked structures, provided their impact case and governance are robust (Convergence, 2024; OECD, 2014).

This segmentation is not cosmetic. It protects against two recurring errors. One is over-financialisation: forcing interventions into investment logic when grants would be more appropriate. The other is under-capitalisation: assuming that all mission-driven organisations must remain dependent on short-cycle grants even when a better capital structure is possible. Maintaining that distinction is what keeps the argument analytically honest rather than ideological.

Local ownership, power asymmetry and currency risk

A serious development argument also has to ask who defines the terms, who bears the risk, and who owns the strategy. The legitimacy of impact investing in development does not depend only on mobilising capital; it also depends on who controls design, governance and accountability. OECD’s 2025 guidance identifies local ownership as one of the constraints that still limits the wider and more effective use of blended finance, and argues that interventions tailored to local context are more likely to deliver lasting results (OECD, 2025a).

This matters because development finance can easily reproduce power asymmetries under more sophisticated language. If capital is structured externally while local actors carry implementation risk, reporting burdens and strategic dependency, the result may look innovative without being genuinely developmental. That is why I see local ownership not as a moral add-on but as part of sound design. The closer capital gets to shaping organisational behaviour, the more important it becomes to ask whether local actors retain meaningful agency over priorities, pacing and trade-offs.

Foreign-exchange risk brings the same issue into sharp practical focus. In many emerging markets, organisations earn revenues or recover costs in local currency while borrowing or raising capital in dollars or euros. OECD’s recent work on local-currency financing describes FX risk as a critical barrier to external financing for sustainable development and argues for stronger local-currency solutions, deeper domestic capital markets and more balanced risk sharing (OECD, 2025b). The World Bank Group has made a similar point, identifying currency volatility as one of the most significant barriers to investment and expanding its own local-currency solutions in response (World Bank Group, 2026).

In other words, the viability of impact finance often depends not only on impact logic or investor appetite, but on whether currency risk is handled realistically. Hard-currency capital for locally earned revenues can undermine otherwise sound interventions. For Latin America and other emerging-market contexts, this is not a technical footnote. It is one of the conditions that separates responsible finance from fragile finance.

Domestic capital mobilisation and the role of policy

A stronger development-finance perspective also requires looking beyond foreign investors. If impact finance relies only on international capital, it may remain episodic, externally driven, and too detached from local financial systems. OECD’s recent work on local currency financing and local capital markets argues that scaling sustainable finance in emerging markets depends in part on mobilising domestic actors, including local financial institutions and capital-market participants, and on deepening domestic local-currency markets over time (OECD, 2025b, 2025c).

That point is especially relevant in development contexts where local pension funds, banks, insurers and savings vehicles remain underused as potential anchors of long-term capital. Domestic capital mobilisation is not a substitute for international finance, but it makes the system more resilient and less dependent on hard-currency flows. It also helps keep value creation, governance and market learning closer to the context in which impact is actually being produced.

Governments matter here not only as funders or service providers, but as market shapers. They influence what becomes financeable through guarantees, first-loss structures, tax treatment, legal recognition of social economy actors, procurement rules, and support for data and intermediation. The European Commission has been clear that strengthening the social investment ecosystem requires action on market gaps, capability-building and access-to-finance architecture (European Commission, 2026). The EU’s action plan for the social economy also notes that patient, long-term investment capital is not always readily available and that public authorities do not yet make full use of procurement and funding tools to support social economy entities (European Commission, 2021).

Public procurement is particularly important because it can create demand, signal legitimacy, and make revenue models more credible. The European Parliament’s 2023 study on the social impact of public procurement shows that EU procurement rules already contain tools that can be used to pursue social goals, even if these possibilities remain unevenly implemented (European Parliament, 2023). In parallel, OECD’s work on outcomes-based financing shows that governments and development partners can also shape markets by linking payments to measurable results where such mechanisms genuinely add value and fit the context (OECD, 2025d).

Verification, time horizon and mission drift

Another point that needs to be made more plainly is that the growth of the market should not be confused with proof of quality. The field has matured, but unevenly. GIIN’s 2024 market evidence shows that only 40% of surveyed investors verify their impact management processes through a third party, and only 27% do the same for impact results (GIIN, 2024b, 2024c). That is progress, but it is far from universal. A central weakness in the field therefore remains uneven verification, inconsistent comparability, and the continuing risk that “impact” functions as a signalling label rather than a disciplined management practice.

This is why I treat impact measurement and management as a core operating function rather than a reporting extra. Impact Frontiers’ norms are useful precisely because they push the conversation beyond narrative and towards decision-useful evidence about outcomes, trade-offs and contribution (Impact Frontiers, 2024). For me, that connects directly with earlier work in theory of change, results-based management and monitoring. If mission-driven finance cannot explain who benefits, through what mechanism, with what evidence and with what trade-offs, it does not deserve confidence.

A final issue is time horizon. Even when an intervention is strong at entry, mission can still drift over time. Exit expectations, revenue pressure, governance changes and scaling decisions can gradually reshape organisational priorities. That tension is not new. Foundational work on hybrid organisations has long shown that governance and accountability problems sit at the heart of mission drift in social enterprises, especially when social and commercial logics pull in different directions (Ebrahim, Battilana, & Mair, 2014). OECD’s current guidance also notes that complex blended structures can create incentive-alignment and exit challenges if they are not designed carefully (OECD, 2025a).

For that reason, I see mission protection as inseparable from capital design. Intentionality has to survive not just the investment committee, but also growth, follow-on funding and exit. Without governance protections and continued discipline, even well-intentioned capital can push organisations away from their stated purpose.

What this means in practice

Taken together, these arguments lead me to six practical conclusions. First, not every funding problem is a fundraising problem. Often it is a design problem. Organisations need to clarify what outcomes they seek, which parts of their model require grants, which could absorb repayable finance, and what capabilities must be strengthened first (Jackson, 2013; OECD, 2025a).

Second, impact investing should be treated as part of a capital continuum, not as a binary alternative to philanthropy. The practical question is fit, not ideology. Third, investment readiness deserves far more attention in development practice. If organisations cannot articulate governance, financial assumptions, evidence logic and risk clearly, capital will remain difficult to mobilise even when the mission is compelling (European Commission, 2026; Nachyła & Justo, 2024).

Fourth, governments and ecosystem builders should invest in translation infrastructure: technical assistance, trusted intermediaries, data standards, peer learning and enabling regulation. Fifth, development-finance actors should take local ownership and local currency more seriously. It is not enough to mobilise capital; the terms of capital must be workable for those implementing and sustaining the intervention (OECD, 2025a, 2025b). Sixth, impact claims must be independently challenged and continuously managed if the field wants to remain credible (GIIN, 2024c; Impact Frontiers, 2024).

Conclusion

My approach towards impact investing has come from practice, not fashion. I have worked long enough in international development to know that mission alone does not finance operations, protect teams or sustain implementation. Organisations need capital that is realistic, appropriately structured and aligned with the change they are trying to produce.

That is why I regard impact investing as an important funding alternative within the wider development-finance toolkit. Not because it replaces grants, public finance or philanthropy, but because it can widen the strategic options available to mission-driven organisations. Used well, it can connect purpose with capital, strengthen theory of change and impact management, and create a more realistic bridge between social ambition and financial viability.

But that argument is credible only under conditions. Impact investing earns legitimacy when it demonstrates additionality, respects local ownership, fits the economics of the intervention, allocates risk fairly, protects mission over time, and subjects its claims to disciplined scrutiny. Without those guardrails, it risks becoming another attractive narrative. With them, it can become a serious part of development finance.

Key Takeaways

• Impact investing is most useful as a complement to grants, not a universal substitute.

• Additionality is the core test: capital must add something that other funding would not.

• Local ownership and FX realism are not side issues; they shape whether finance works in practice.

• Not every intervention should be made investable; segmentation protects both mission and rigour.

• Verification, governance and time horizon determine whether impact remains credible over time.

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