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  • Writer's picturePatricia Chu

Unleashing Debt Capital for Companies Driving for Impact in Southeast Asia

Written by Stella Cao, Fellow at Mana Impact

Image: Unsplash

Most early stage and small companies are only able to access venture capital type funding, given that they are too small to access the capital markets, bank loans or other debt instruments.

The issue is that venture capital funding is not appropriate for all types of companies, as venture capital (“VC”) funds are looking for a specific type of return profile within a specific time horizon; typically 10x, within a five year period. Early stage and small companies with a tech enabled solution may be able to fit the venture capital profile. However, many of the companies that are seeking for a triple bottom line, operating in emerging markets and engaged in land and agriculture, ocean health and nature, and biodiversity positive industries are not able to deliver the VC type returns.

In many instances, the most appropriate type of capital needed is debt. However, this is not easily available either, given that in order to receive financing from traditional banks or multinational financial institutions, companies would be required to have collateral, a proven track record of revenues, a robust balance sheet, and adequate record keeping, which many of them are not able to provide.

It is estimated that the funding gap faced by 39 million of over 70 million Micro, Small and Medium Sized Enterprises (“MSME”) in Southeast Asia is as much as USD 300 billion(1). These are MSMEs that make an annual turnover of USD 100,000 to USD 1 million, meaning they are too large for microfinance loans but still ineligible for loans from large banks, also known as the “missing middle”(2).

While impact investment in Asia has been growing at 8% annually from 2020 to 2022(3), most impact investors are still looking for equity type investments, which have the potential to deliver higher returns, but also have higher risks. According to the Phenix Capital 2023 Impact Fund Universe Report, the total amount of debt funding raised compared to equity funds was 1:3 in Asia.

Chart 1: Southeast Asia overview of impact investing activity 2020-2022

Development Finance Institution (“DFI”), Private Impact Investor (“PII”)

Chart 2: Impact funds raised via private debt v.s. private equity(4)

Debt enables companies to ramp up operations or kick off projects without giving up equity and also fund working capital or short term capex. Debt can also serve as rescue credit for companies that have solid fundamentals and are making a positive impact, but experiencing short-term difficulties due to market conditions.

Direct lending to impactful early stage companies will require more flexible debt terms than structures offered in traditional banking. As early stage start-ups are typically not generating strong cash flows in the first few years, loans will need to be structured according to how the business is performing—e.g., short term grace period, interest only payments, or back ended principal towards end of the loan tenor.

Similarly, outcome-based loans, whereby companies get a discount on interest rate if they meet certain impact targets, are another type of instrument that impact investors may consider structuring and supporting.

While there are a few players providing debt financing to companies pursuing a triple bottom line in Southeast Asia, we believe that the demand far outstrips the current supply and there remains a large untapped market. Some of the players include:

Wedgetail: Wedgetail’s first financial product is nature-linked loans. These loans are built to accelerate businesses that have nature-positive impacts on the landscapes in which they operate. Interest rate decreases as the borrower meets targets in natural capital for example by restoring, conserving or rehabilitating land.

Leap201: Leap201 has a Southeast Asia focus and provides loans at below market interest rates to social enterprises and companies that have high social impact and lifts vulnerable communities above the poverty line. They focus on three main sectors: Agriculture Value Chain/Agritech, Financial Inclusion/FinTech/Micro Insurance, and Energy and Water. The type of company they provide loans to has at least three years of success and the potential to scale, and are typically in the Series B or C stage of equity investment.

Beneficial Returns: Crowdsource funding in developing countries. Beneficial Returns pool funds from impact investors, private and corporate foundations, faith-based organizations, and donor advised funds to make these loans. They provide capital to those in need with investors who are looking to make an impact while also making returns on their investments. They also address the need from these impactful companies for a fast turnaround time; they can fund within two months of application.

Beacon Fund: Beacon Fund aims to contribute to closing the gender financing gap by providing debt capital and support to sustainable, moderate growth companies led by female entrepreneurs. In doing so, Beacon hopes to shine a light on alternative models of entrepreneurial and investing success. Their geographic focus is Vietnam, Indonesia, the Philippines, with opportunistic investments elsewhere in Southeast Asia.

InnoVen Capital: InnoVen Capital is Asia's leading debt firm with offices in India, China and Singapore. It provides debt capital to high growth ventures. Started in 2008 as the first dedicated venture debt provider in India, the platform offers multiple debt capital solutions, including venture debt, acquisition finance, growth loans, working capital etc. InnoVen Capital SEA is the leading venture debt provider to start-up and growth stage companies in the region having invested over USD 210m on over 100+ debt transactions, and backing over 55+ portfolio companies.

Conservation International LLC: CI Ventures is an investment fund that provides loans to small- and medium-sized enterprises that operate in the forests, oceans and grasslands where Conservation International works​. Industries include sustainable agriculture, forestry, ecotourism or wild fisheries.

Terratai: Terratai is a venture builder for nature based solutions (“NbS”) in Southeast Asia. Terratai will focus on providing financial and, more importantly, hands-on business and operational support to these ventures over three to five years and beyond, helping them to grow to the point they are institutional capital ready. They provide access to seed financing and concessionary capital to reach scale.

Althelia Sustainable Ocean Fund (“SOF”): SOF invests in predominantly emerging market enterprises and projects in three key areas—sustainable seafood, the circular economy and ocean conservation—to improve their sustainability and efficiency. It is an eight-year, closed end fund, which will end in June 2027. The fund has a blended structure and has a $50 million Development Credit Authority facility with USAID. SOF provides loans, equity and quasi equity to enterprises and projects in its portfolio, and sometimes a mix of these, but the USAID facility guarantees up to 50% of the principal on eligible loans the fund extends throughout its portfolio.

Clarmondial: Clarmondial is a Swiss investment advisory firm committed to mobilizing finance for projects and businesses that contribute to environmental stewardship. They provide investment solutions, such as the Food Securities Fund (an impact fund that provides working capital) and the Biosphere Integrity Fund (an impact fund in development that will provide long term financing). Both funds address the urgent needs of sustainable agriculture supply chains in emerging markets.

There is therefore a strong additionality perspective for impact investors to consider addressing. Furthermore, providing debt to impact driven companies not only can generate relatively competitive financial return within a shorter time horizon than equity investments, but it can also provide impact investors with more liquidity and diversification in their impact investment portfolio.

At Mana Impact, we are supporting impact investors to explore debt opportunities in our region and believe that debt is important in the capital stack to support impact driven early and small medium enterprises achieve their full potential.


  1. SME Finance Forum (2018): MSME Finance Gap. Note that with the pandemic this number could be much higher.

  2. Funding Societies (2021): Your Funding Societies | Modalku Economic Impact Survey 2021.

  3. Impact Investing in Southeast Asia 2020-2022 Update, Intellcap April 2023.

  4. Phenix Capital 2023 Impact Fund Universe Report.Note: data does not include Oceania. Data as at 31 January 2023.



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