CELEBRATING 30 YEARS OF GLOBAL PARTNERSHIPS

From Intentions to Impact: Three Lessons in Aligning Capital with Purpose

By Tara Murphy Forde, Chief Capital & Impact Officer at Global Partnerships

Microfinance: A Learning Journey

Microloans aren’t new. As far back as the 1700s, Jonathan Swift offered interest-free loans to poor tradespeople in Dublin. But the modern wave of microcredit gained attention in the 1980s when Muhammad Yunus established Grameen Bank to provide small low-interest loans to people living in rural poverty in Bangladesh. His insights launched a movement built on a compelling theory of change: that access to working capital would enable entrepreneurs in resource-strapped communities to expand their businesses, grow their incomes, and lift their families out of poverty.

By the 1990s and early 2000s, the possibility of earning positive returns while helping to make the world a better place captured the imagination of capital markets. The influx of capital that followed was widely celebrated as a great success and as evidence that microcredit was a sustainable and scalable business model. As a result, more and more microfinance institutions (MFIs) began to transition from donor-funded NGOs to commercially funded banking institutions.

While this shift brought new resources and growth, it also came with unintended consequences. The need to generate competitive returns created strong incentives for MFIs to prioritize profitability over purpose. As they pursued higher returns, many moved upmarket to serve wealthier clients, drifting away from the more vulnerable borrowers they were originally created to serve. Essential services such as financial literacy training were scaled back. Interest rates for end borrowers didn’t fall as expected as the industry grew, and in some cases, even increased.

Important lessons on the need to balance impact, scale, and profitability in global development began to emerge. Nowhere was this more evident than in the high-profile IPOs of Compartamos Banco in Mexico and SKS Microfinance in India, where investors reaped windfalls and borrower numbers grew, while mission drift deepened. Worse, in Andhra Pradesh Province in India, over-indebtedness and coercive loan recovery tactics culminated in a suicide crisis in 2010 when more than 80 people took their own lives after defaulting on microloans, revealing how quickly social good can be compromised when financial incentives are misaligned.

Beyond Good Intentions: Impact-First Investing

At Global Partnerships, we saw this evolution firsthand. Founded by Bill and Paula Clapp in 1994, we began as a grant maker supporting MFIs in El Salvador and Guatemala. In those early years, it became clear to us that while philanthropy could be catalytic, philanthropy alone would never meet the scale of the need. We also learned that people living in poverty can be reliable customers and that with the right incentives, product features, and safeguards, MFIs can provide essential working capital that supports livelihood creation and builds economic resilience. At the same time, we witnessed the risks of relying on simplistic measurements like numbers of clients and repayment rates as stand-ins for real impact. To succeed in our mission to expand opportunity for people living in poverty, we needed to understand who was being served and focus on whether their lives were actually improving in meaningful ways.

These lessons fundamentally shaped how we invest. In 2005, with the launch of our first investment fund, we shifted from grantmaking to impact-first investing through low-cost, fixed-rate loans to MFIs. This shift was grounded in the belief that to truly make a difference in people’s lives, the microfinance sector required investment capital that is aligned with purpose.

Pursuing this alignment meant we needed to do more than just evaluate the financial risks and impact intentions of the MFIs we invested in. It is just as critical to assess the design and delivery of the products and services they offer—who they’re built for, what needs they meet, how they are positioned to deliver meaningful improvements in people’s lives, and at what cost to the household.

All this required better data. So, we began measuring both inclusion and outcomes, first through existing data about each enterprise, its offerings, and its operating environment. Over time, we worked with partners like 60 Decibels to capture data from the clients served by our enterprise partners, via phone surveys. And we developed new approaches to analyze and benchmark that data, alongside the data we collect in our underwriting to understand impact performance.

Collectively this data gives us visibility into the percentage of clients served by our social enterprise partners that live below the World Bank’s $3.65 and $6.85 per day international poverty lines. It also helps us understand their experience of the product and service offerings. For example, more than 90 percent of clients surveyed in our Women-Centered Finance with Education initiative report higher income and stronger financial planning skills. Nearly 70 percent report spending more on their children’s education and 73 percent have improved the quantity and quality of family meals.

From Impact Measurement to Optimization

Today, impact data is considered in every stage of our investment process—from initial screening to post-investment monitoring. At the outset, we define clear, measurable impact objectives—identifying the target population and the outcomes we aim to support—and we evaluate not only a social enterprise’s financials but also its client reach, product design, delivery model, and safeguards. The result is a data-informed view of how efficiently and effectively capital is being used to reach and enable meaningful outcomes for people living in poverty, with a particular focus on women and rural populations.

And this kind of data doesn’t just drive better investment decisions. After investing, we work alongside our partners to gather and interpret client-level data, with an eye toward what’s working, what can be improved, and how to increase efficiency without compromising impact. BRAC International Microfinance, for instance, has been working with Global Partnerships and 60 Decibels to collect client-level data.

When the organization wanted to further deepen its social outcomes performance, BRAC used insights from the annual surveys to understand what its clients wanted most. Training on financial management skills for clients emerged as a critical need to unlock outcomes improvements, with BRAC using the next survey to gauge what topics to include in the curriculum. After almost two years of piloting the comprehensive financial literacy training program, follow-on assessments have demonstrated better client outcomes, experience, and satisfaction for those receiving the training, leading BRAC to prioritize broader rollout of the offering.

Bottom line? Impact data is critical business intelligence – for Global Partnerships as an impact-first fund manager; for our enterprise partners, who are committed to delivering goods and services that create opportunities for their clients; and for our investors, who believe in using their capital to improve the lives of people living in poverty.   

The Future of Impact-First Capital

Today, our impact-first approach extends beyond microfinance and our learnings from the sector inform our fund investments in agriculture, healthcare, housing, and water. We start with clear impact objectives. We underwrite for inclusion and outcomes. And we use data to guide capital toward what works.

At the leading edge of impact-first investing, we see capital, analytics, and advisory support strengthening the ecosystem – with social enterprises designing more effective offerings, asset allocators designing more fit-for-purpose vehicles, and investors having more opportunities to allocate capital on terms that optimize impact for people living on dollars a day. The result? A future where more capital is flowing to enterprises that are not only scalable and sustainable but also rooted in the realities of people living on dollars a day and their aspirations to improve their lives.

This is the third part of our 30th anniversary series, where we share reflections that guide our work today and inform the path ahead. Read more of the series here.