We’ve just returned from Berlin and the annual GIIN Impact Forum which is always an essential event for taking the pulse of the impact investing industry. But this year, as we read through the GIIN’s new State of the Market 2025 report and spoke with fellow practitioners, we were struck by a series of tensions – opportunities and challenges that speak directly to the work we do for SME-focused funds across emerging markets.

The Double-Edged Sword of Institutional Capital

The headline news is the continued flow of institutional capital into impact. The report reveals that pension funds now supply 35% of all impact capital, with AUM from this source growing at a staggering 47% CAGR since 2019. On the surface, this is fantastic news. More capital should mean more resources to tackle the world’s biggest problems.

However, for SME-focused funds, this presents a double-edged sword. This wave of institutional money often seeks larger ticket sizes and gravitates towards what are perceived as “safer” investments. The GIIN’s own data shows a significant investor shift towards mature, publicly traded companies, which saw a 51% CAGR in investment over the last six years.

This creates a real risk. As the mainstream of impact investing moves towards larger, safer bets in developed markets, the vital, high-impact work of financing SMEs in emerging economies could get crowded out. It makes the role of specialist SME-focused funds more critical than ever, but it also means that to attract LPs, DFIs, and blended finance, the need for robust proof of impact is non-negotiable.

Beyond ‘Framework Fatigue’ to the Real Data Challenge

A common complaint in the hallways in Berlin was “framework fatigue.” While the report confirms that industry fragmentation is a challenge, my conversations confirmed that for SME investors, the problem runs much deeper. It’s not just about the weak fit of existing frameworks for SME-specific outcomes like quality jobs or gender equity; it’s about the fundamental difficulty of gathering meaningful, credible outcomes data from a diverse portfolio of small businesses.

The GIIN report validates this pain point perfectly. Investors cited cost (a challenge for 92%), time (93%), and verification (88%) as the top barriers to data collection. For our clients, this is a daily reality. How do you cost-effectively measure job quality, supply chain resilience, or a female entrepreneur’s economic empowerment without placing an unsustainable reporting burden on the very businesses you’re trying to help?

This is where we must be honest with ourselves as an industry. The report found that while a majority of investors see impact-washing as a market-wide problem, a statistically improbable 0% believe their own impact performance is worse than their peers’. This highlights a dangerous gap between self-perception and reality. Without credible, objective data that goes beyond simple outputs, we can’t truly demonstrate the unique, additional impact that SME finance delivers and mitigate the real reputational risks of weak reporting.

A Generational Opportunity in a Risk-Averse World

The final tension is perhaps the most important. Against a backdrop of a global economic slowdown, investors are understandably cautious. We see capital concentrating in high-income regions like Northern America and Western Europe.

Yet, the report simultaneously declares that pullbacks in traditional aid have created a “generational opportunity” for impact investors. The greatest needs and, arguably, the greatest opportunities for transformative impact are in emerging markets, in foundational sectors like agriculture, healthcare, and clean energy.

SMEs are the engine of these economies. They are the businesses that provide these essential goods and services. The challenge for SME-focused funds is to bridge this gap – to make the compelling case that investing in their portfolios is not just about taking on more risk, but about seizing this generational opportunity to create deep, lasting and measurable impact.

Here to Help

At The Good Economy, these are the challenges that energise us. Helping SME-focused investors navigate this complex landscape, develop robust and right-sized impact management frameworks, and tell a credible story backed by real data is at the heart of what we do.

If you’d like to discuss how to better navigate these challenges and articulate your fund’s unique impact, please get in touch.