By Nicole Martens, Head of Impact Investing Research, and Justin Prozesky, Principal: Impact Capital, Krutham
A practical solution to a changing landscape
Major developments including the effective closure of USAID in 2025 irrevocably changed the donor environment and highlighted the urgency for the local non-profit sector in Africa to find solutions for the trend of declining donor agency budgets.
Government allocations to the non-profit sector are similarly being squeezed. Austerity budgets are having a direct impact on a sector that plays a crucial role in delivering services to vulnerable and marginalised communities, often in areas where existing government services simply do not reach.
Private and corporate philanthropy are being asked to cover some of the funding gap. Those with the resources to respond, are doubling down on their commitments, by essentially extending their grant budgets. For example, the MacArthur Foundation, which supports non-profit organisations in 117 countries, announced it was effectively doubling its grants to help cover the funding shortfall being experienced – or about to be experienced – by many non-profit organisations.
Extending grant funding is an intervention that represents short-term financing solutions. But what can be done to create longer-term, more sustainable financing mechanisms and structures to support vital social sector programmes – the often-crucial work of the non-profit sector and the social enterprises that all operate in the spaces left by large businesses and governments? This is where impact investing provides potential solutions.
Impact investing, with its interplay between social and financial objectives, has risen to prominence in the past decade. One might argue that these current circumstances provide a tangible opportunity for impact investors (led by philanthropies) to advance their work. Put simply, that work is to set up the structures and mechanisms to mobilise the capital needed to support the social ventures and non-profits requiring funding to survive, sustain and expand their operations. This work also has the potential to break perpetual donor-dependency that is no longer viable.
A home-grown approach
Through the African Impact Investing Awards, sponsored by FirstRand and researched and managed by Krutham, we have gained valuable insight into crucial work of the role players in impact investing on the continent. The awards process shines a spotlight on impact investing in Africa, which is maturing into a powerful driver of development, with clear lessons emerging from recent case studies:
- The first is that diversification of capital is essential. Models that combine concessional and commercial funding, alongside domestic pools of finance, are proving more resilient and better able to mobilise large volumes of private capital. At the same time, the emphasis is shifting from dependency on external aid to building local ecosystems where domestic investors, pension funds and development banks play a more central role. This evolution is strengthening financial sustainability and anchoring investments in the long-term priorities of African economies.
- Another trend is the expectation that social enterprises must become commercially sustainable much sooner. Revenue-generating business models are increasingly seen as a prerequisite for scale, ensuring that enterprises in energy, agriculture and health can grow without permanent subsidy. Paired with “patient” and catalytic capital, these models show how risk can be managed while opening space for innovation. A further lesson lies in ecosystem building: technical support, regulatory frameworks and strong local networks are as critical as capital in helping young businesses, particularly those led by women and youth, to thrive.
- The development outcomes are clear. In clean energy, impact investors are fast-tracking decentralised solutions that extend affordable power to underserved communities while cutting emissions. In entrepreneurship, particularly for women and young people, blended finance and tailored support are unlocking new opportunities for job creation and enterprise growth. In food security, targeted investment in agri-food businesses is enabling more resilient value chains, improving nutrition and strengthening rural livelihoods. In South Africa, the alignment of impact capital with national policy priorities shows how this approach can support systemic transformation.
Taken together, these lessons suggest that impact investing in Africa is not only closing funding gaps but laying the foundation for inclusive and sustainable growth across the continent.
Opportunities abroad
Impact investing can take many forms, with several opportunities available to philanthropies in South Africa.
- Blended finance vehicles: Several “pooled” capital vehicles are due to launch in South Africa in 2025 and 2026, offering impact investors an opportunity to direct their “mission-aligned” investments into structures that will pool different sources of capital and offer flexible lending products to different kinds of small businesses who which all share the need for growth capital. These funds will have a long-term (often termed “patient”) outlook and contain features such as repayment holidays, forgiveness clauses and low interest rates.
- Results-based finance: The growing adoption of outcomes funds and other results-based financing mechanisms to improve efficiencies in public sector programmes is a further option for impact investors. These pay-for-performance models offer an alternative to traditional methods of public procurement by providing payment only once predetermined outcomes have been achieved (either fully or partially). In this way the job of trying to resolve a particular social issue is left to the innovation of the implementing parties, and with rigorous verification requirements. A number of results-based programmes are already operating in South Africa presenting further opportunities for impact investors.
- Deploying surplus cash: Investing surplus cash into notice or fixed deposits has historically been the norm for philanthropies. A growing number of asset managers are creating higher-yielding cash investment and “impact” fixed income products that can improve the yields earned on spare cash, without materially increasing risk.
Working within limits
While impact investing presents opportunities for philanthropies to undertake both mission-aligned and programme-related investing, it is not without its challenges.
South Africa has a well-established regulatory framework for legal entity structures, financial reporting and (historically supportive) tax models that support not-for-profit work. But enhancements are needed to truly enable a new generation of impact capital vehicles, built more flexibly around the growth needs of investees and the impact investing agenda of investors. These include designing reporting taxonomies for impact structures to transparently attract more capital, removing the uncertainties around tax emption rules pertaining to impact investments, consolidating disparate sources of funding, and deploying these funds with blended returns and a long-term, patient outlook. And of course, awareness of the opportunities and the impediments – among practitioners and boards – needs to keep growing.
Looking ahead
The ideas and the resources to embed impact investing as a strategy for philanthropies are gaining prominence. There are more opportunities to invest for impact, and the organisations/companies? and individuals pioneering these opportunities are being given due recognition. Grant funding will continue to play a vital role in the work of philanthropies but, now more than ever, foundations have options to maximise the value and reach of their capital.
Impact investing proves that when capital is put to work in service of people and the planet, it becomes a driver of tangible, lasting change.