Deep dive into Impact-Linked Finance

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Impact-Linked Finance FAQ

Here come the most frequently asked and burning questions with our best answers. For more Impact-Linked Finance Q+A, please download our complete FAQ document:

Impact-Linked Finance

Impact-Linked Finance refers to financial solutions targeting market-based organizations, with financial rewards directly linked to the achievement of positive outcomes. By providing “better terms for better impact”, Impact-Linked Finance aims to enable and incentivize enterprises to deepen and / or accelerate their positive impact, while continuing growing their businesses. Impact-Linked Finance is highly tailorable, can take different forms and can be applied to various financial instruments – from equity to debt to guarantees.

For example, lenders can link the interest rate of their loans to pre-defined impact performance metrics, decreasing the rate depending on the impact the enterprise achieves. Impact-Linked Finance is therefore a powerful way to “bake” impact into the core of finance. It aligns positive impact with economic viability and lies at the intersection between blended finance, impact investing and results-based financing.


Impact-Linked Finance Definition (click image to enlarge)

ILF Graph

Design Principles for Impact-Linked Finance

Impact-Linked Finance features nine key design principles, namely:

1. Consider impact as a measure of performance

2. Align incentives for all stakeholders involved

3. Provide incentives to the value creator

4. Focus on simplicity and transparency

5. Ensure impact additionality

6. Enable financial additionality (leverage)

7. Adapt pricing to specific context

8. Design informed and fair incentives

9. Focus on outcomes versus outputs.

A complete version of the Design Principles for Impact-Linked Finance as of February 2023, including refinements and explanations for practical implementation, is available from Roots of Impact.


Design Princples for Impact-Linked Finance (click on image to enlarge)

ILF Design Principles 2

The main benefits of Impact-Linked Finance

For enterprises, Impact-Linked Finance provides catalytic funding that allows them to grow and scale, in both commercial and impact terms. In other words, by providing the enterprise with “better terms for better impact”, Impact-Linked Finance ensures that creating social or environmental outcomes is a “business that pays off”. While all Impact-Linked Finance instruments aim to have a catalytic component, the exact level of concessionality varies according to the instrument, the program and/or the funder/investor.

For outcome funders (e.g. public or philanthropic entities that aim to achieve a catalytic effect), the benefits of Impact-Linked Finance arise in the form of an effective use of their capital. By paying* or discounting** only for the impact created, Impact-Linked Finance automatically guarantees an effective and efficient use of their funding. In other words, outcome funders pay or forego on repayments only when, and for, the amount of real impact achieved.

Investors may also benefit from Impact-Linked Finance, although it depends on their role they have within the concrete instrument. With Social Impact Incentives (SIINC), for example, investors benefit indirectly because the enterprise they invest(ed) in receives an additional revenue stream (due to the fact that SIINC is not repayable), which enhances its return profile. If investors are very impact-oriented, they may themselves engage in repayable Impact-Linked Finance instruments, for example Impact-Linked Loans. In this case, their benefit is similar to the one of the outcome funders: they enjoy a catalytic effect and an efficient and effective use of capital that spurs additional impact, while still making a return.

A general benefit arising from the Impact-Linked Finance practice is that investment is mobilized to scale effective, market-based solutions that have a social and/or environmental impact. Indeed, all Impact-Linked Finance instruments should ideally trigger additional investment that is directed to impactful enterprises. This can be either (1) directly, i.e. in the case of instruments such as SIINC that require the enterprise to raise private investment in parallel, or (2) indirectly, i.e. in the case of instruments that increase the level of interest by investors, because the enterprise receives concessional and catalytic capital or was enabled to grow further. Moreover, for all Impact-Linked Finance instruments, the rewards generally go directly to the value creator, i.e. the enterprise in the field.  As such, no money is “lost on the way” and is relatively quickly and easily deployed.

* e.g. in the form of incentive payments, as is the case of SIINC.

** e.g. in the form of interest rate reduction, as is the case in Impact-Linked Loans or multiple reduction, as is the case for Impact-Linked Revenue Share.

The track record of Impact-Linked Finance (as of year-end 2022)

Impact-Linked Finance has a proven track record with numerous transactions in a variety of sectors, including healthcare, agriculture, off-grid energy, WASH, financial inclusion and vocational skills development, and in different regions, including Africa, Asia and Latin America. Exact transaction numbers constantly increase. To provide an idea, as of year-end 2023, Roots of Impact and its program partners alone have completed 44 transactions, with another 59 transactions planned. This includes SIINC, Impact-Linked Loans and Impact-Ready Matching Funds, as well as Impact-Linked Revenue Sharing Agreements and Impact-Linked Payments. Organizations such as the Swiss Agency for Development and Cooperation (SDC), KFW DEG, IDB Lab, Aqua for All, Medicor Foundation, Jacobs Foundation and GIZ/EnDev have already engaged as outcome funders in these Impact-Linked Finance transactions.

Since 2021, the newly established Impact-Linked Finance Fund acts as THE platform for upcoming Impact-Linked Funds focused on specific sectors and regions. Examples are the Impact-Linked Fund for Education and the Impact-Linked Fund for Gender Inclusive FinTech.


For more information on ongoing SIINC programs please visit Roots of Impact’s “SIINC in practice” website. All information on Impact-Linked Funds are available on this website.

The scope of Impact-Linked Finance instruments

There is a variety of Impact-Linked Finance instruments. Some (the so far most frequently used) will be explained in more detail in the following FAQ tabs, while others exist in design but are yet to be implemented. It is worth noting that many more traditional investment tools can be transformed to include an impact-linked component. This allows to tailor them to many different enterprises and situations.

To be rightfully called “Impact-Linked Finance”, the instruments need to follow the Impact-Linked Finance Design Principles. The most important feature to be fulfilled is linking financial rewards to impact, which results in “better terms for better impact”. The below list gives an idea of the most utilized Impact-Linked Finance instruments, including their variations. They are considered to be “blended” once structured to inevitably and directly include both, public/philanthropic funding and investment.


The Scope of Impact-Linked Finance (click on image to enlarge)

Social Impact Incentives (SIINC)

SIINC stands for Social Impact Incentives. SIINC is an Impact-Linked Finance instrument that rewards impact enterprises with time-limited payments for achieving additional positive outcomes (often referred to as “impact additionality”). Such financial rewards are non-repayable and can be utilized as the enterprise deems fit. By representing an additional revenue stream, SIINC enables impact enterprises to improve their profitability and attract (more) investment to scale (generally defined as “financial additionality”). In order to receive SIINC, enterprises need to successfully close a (repayable) investment round in parallel. As per common practice to date, financial leverage rates between 1:1 and 1:12 can be obtained. As such, SIINC effectively leverages public or philanthropic funding to catalyze investment in underserved markets with high potential for positive impact. This feature classifies SIINC as a blended finance instrument.

SIINC can also have a repayable component: In a Convertible SIINC, the financial instrument can be transformed into e.g. equity or shares by the end of the SIINC period. Another variation is a Reimbursable SIINC, in which (part) of the payments have to be returned, for example upon achieving a certain level of profitability. More information on SIINC can be found here.

SIINC model (click on images to enlarge)

Reimbursable/Convertible SIINC

Impact-Linked Payments

If the enterprise is not raising repayable investment, Impact-Linked Payments may be used to provide the same outcome-based financing as is the case with SIINC, but without the requirement for a direct financial leverage. Impact-Linked Payments can take different forms but the same principles of providing funding upon achievement and verification of impact need to apply.

Impact-Linked Loan

An Impact-Linked Loan is similar to a traditional loan, yet the main difference is that the interest rates (and potentially even the repayment obligations of the principal amount) are tied to the borrowers’ achievement of pre-defined impact milestones. The enterprises receive “better terms for better impact”: The higher the impact achieved, the lower the interest rates to be paid. In specific scenarios and contexts, – and depending on the investor -, (partial) loan forgiveness can be defined for achieving very high levels of impact.

The terms and conditions of Impact-Linked Loans can vary significantly. The loan amount, for instance, should be dependent on a variety of aspects, including the maturity and growth stage of the enterprise. This is to make sure that the loan does not overburden the borrower’s balance sheet.  Similarly, the loan maturity should be based on the enterprise’s ability to repay and on the purpose of the loan proceeds.

As per the common practice of the Impact-Linked Finance Fund and Roots of Impact to date, Impact-Linked Loans typically have a longer duration (2-5 years) and can include a grace period. However, exact terms can be adapted as deemed best for the concrete case. There is also the option for public or philanthropic funders to provide investors with a compensation to make up for lower returns, in which case the Impact-Linked Loan becomes a blended finance instrument.

Impact-Linked Loans are particularly suited for enterprises, whose growth stage, profits and losses as well as balance sheets allow to take on debt. As opposed to SIINC, there are generally no co-investment or leverage requirements for Impact-Linked Loans.


Impact-Linked Loan (click on image to enlarge)

Impact-Linked Revenue (or Profit) Share Agreement

In an Impact-Linked Revenue or Profit Share Agreement, periodic repayments to the investor are based on an agreed upon percentage of either (a) the revenues (“revenue share”), or (b) the profits (“profit share”). In both cases, the repayments are limited to a predetermined return on investment (“cap”), and the exact reimbursable amount (typically expressed as the “multiple” on the initial investment) is linked to impact. The higher the impact achieved, the lower the repayment obligations.

This instrument not only allows the enterprise to partially pay back by creating impact, but also to enjoy higher levels of flexibility in its repayment obligations. Since payments are not tied to a fixed amount or interest rate but rather fluctuate with the enterprise’s revenues (or profits), the enterprise is able to meet its payment obligations even in times of low revenues (or profits), without incurring the risk of overburdening itself.


Impact-Linked Revenue Share Agreement (click on image to enlarge)

Impact-Ready Matching Fund (IRMF)

An Impact-Ready Matching Fund (IRMF) is a hybrid Impact-Linked Finance instrument that features matching funds that are conditional to the enterprise establishing an impact management and measurement (IMM) system. IRMF is typically provided to impact enterprises in seed stage. The disbursements are linked to milestones depending on the implementation of an IMM system, while also matching 1:1 an investment round (with a potential cap, e.g. up to US$ 100K) that the enterprise needs to raise in parallel. In other words, IRMF is a matching fund that includes results-based technical assistance funding. As such, the model requires a public or philanthropic funder to commit non-repayable funding tied to the amount of investment provided by a third-party investor.

As per Roots of Impact’s practice to date, the achievement of milestones is assessed by the provider of funding or by an independent verifier. IRMFs are typically targeted at seed or very early-stage enterprises that show great potential but are not yet ready to engage in more advanced Impact-Linked Finance models (such as SIINC and Impact-Linked Loans that require impact, commercial and financial plans that are strong and structured).  IRMFs have first been implemented within the B-Briddhi program that Roots of Impact created and runs with its partners, the Embassy of Switzerland in Bangladesh and LightCastle Partners (more details available on the B-Briddhi website).


Impact-Ready Matching Fund (click on image to enlarge)

When to use which Impact-Linked Finance instrument

There are a variety of Impact-Linked Finance instruments, each having their very own characteristics and suitability criteria. Which instrument is best used in which case depends on a variety of aspects, for example the stage of the enterprise, its ability to raise investment or repay debt, or its impact measurement and management practices. From a funder’s perspective (whether philanthropic or public funder or investor), the choice will also be dictated by the level of concessionality that the capital providers are willing to accept, i.e. how patient the capital is and what the providers risk-return preferences are. The Innovative Finance Toolkit (co-created by Roots of Impact for the B-Briddhi program) gives more details and examples of financing instruments and illustrates the most suitable application for each one of them. In addition, the Impact-Linked Finance Navigator below gives some high-level guidance on which instrument is best to use when:


Impact-Linked Finance Navigator (click on image to enlarge)

Suitable enterprises and intermediaries for Impact-Linked Finance

A diverse range of instruments can give the right type of funding to different kinds of enterprises in various growth stages. For instance, Impact-Linked Loans are generally provided to more mature enterprises that are able to repay debt, and yet can highly profit from low-cost capital as a reward for creating additional impact. However, there are some criteria that are particularly suitable for enterprises looking to receive Impact-Linked Finance support. These include:

  1. strong and sustainable business models,
  2. highly scalable solutions,
  3. short- or mid-term potential for commercial self-sustainability or public contracting,
  4. strong evidence for positive impact on disadvantaged and vulnerable groups, and/or
  5. measurable and trackable outcomes that can be attributed to the solution.

Ideally, but not necessarily, Impact-Linked Finance addresses potential (temporary) tensions between impact and commercial goals. This can be the case if deepening the impact (e.g. serving low(er) income groups or more remote areas) may (initially) lead to higher risks and lower profitability. Impact-Linked Finance can help enterprises overcome such tensions, for example by helping them bridge the initial low economies of scale. Moreover, Impact-Linked Finance – specifically repayable instruments – can also be used for financing impactful activities that enterprises would otherwise find difficult or impossible to obtain funding for (with similar terms).

Impact-Linked Finance can also be directed to (financial) intermediaries in order to enable them to focus on underserved, high-impact segments. For example, incentives can be provided for serving (more) vulnerable groups, whether in terms of gender, location, ethnicity, or ticket/business size. An example are financial rewards to a provider of high-additionality loans to agricultural SMEs in rural areas (for more details, check out this article). High additionality in this context means that no other lender would provide these (small) loans to enable agricultural SMEs to (better) serve more smallholder farmers. Depending on the intermediary and the instrument, Impact-Linked Finance can spur both, a permanent and a provisional business model shift towards more impactful approaches.

The kinds of impact that Impact-Linked Finance can reward

In Impact-Linked Finance, impact is generally understood as either (1) verifiable, measurable outcomes or as (2) proxy-outputs with strong evidence of their linkage to specific outcomes. For example, if there is clear evidence that the safe water provided by a specific solution leads to health improvement (e.g. via a thorough and independent impact report or an academic paper), incentives can focus on access to water for low-income groups rather than on the actual health status of single customers.

In general, incentives are identified on a case-by-case basis and in close collaboration with the entrepreneurs, so to ensure that the metrics and targets are both desirable for, and attainable by, the target enterprise. The incentives are identified with a bottom-up and enterprise-centric approach. This collaborative process entails a close assessment of the enterprise’s impact model and measurement system as well as its growth plan. This allows to better understand where additional impact could and should be created as well as what level of impact the enterprise would be creating, regardless of a potential Impact-Linked Finance support (baseline). Such a bottom-up approach ensures that all stakeholders involved are fully aligned and that the right type of impact is incentivized and rewarded.

Incentives are often aimed at increasing the breadth (quantity) and / or depth (quality) of impact. For example, performance-based rewards may be provided if the enterprise reaches more customers from low(er)-income or remote communities (breadth) or if their living situation (e.g. income, health) is further improved (depth). Moreover, in the interest of additionality, incentives are provided only for additional impact that is achieved on top of what the enterprise would achieve anyways*, regardless of the Impact-Linked Finance support (see figure below). This ensures that the enterprises are incentivized to increase their impact beyond business as usual. A case study of a finalized SIINC transaction provides further insights into potential incentives. Additonal case studies can be found here.

* This is different in cases, where the creation of impact in not commercially viable at the time of the transaction and the enterprise would not be able to continue creating the impact. In these cases, the incentives can close the commercial viability gap. This allows the enterprise to become financially sustainable and attract private investment.

The Impact-Linked Finance Effect on Impact Performance (click image to enlarge)

Impact-Linked Finance case studies

Enjoy these selected case studies highlighting important aspects that will help you to dive deeper into practice.

Impact-Linked Finance interviews

Would you like to hear the voices of entrepreneurs, who have attracted Impact-Linked Finance instruments to scale their impact? Enjoy the deep insights provided in the growing number of inspiring interviews.

Interview: Making Impact-Linked Finance Work for ATEC
Interview: Making Impact-Linked Finance work for ATEC / Another impact enterprise in the WASH space is...
Interviews: Creating win-win-win situations with SIINC for WASH
Interviews: How SIINC creates win-win-win situations in the WASH sector / Impact-Linked Finance solutions such as...
Interview Katia Cerwin PV
Interview: Empowering Vulnerable Youth With SIINC as a Strong Ally
Interview: Empowering Vulnerable Youth With SIINC as a Strong Ally / From the entrepreneurial journey to...

Impact-Linked Finance reports & reviews

For those of you who appreciate a third-party inspection of what Impact-Linked Finance can do, we have the major publications and evidence sources listed below. Contact us for more if your appetite for food for thought isn’t satisfied yet.

BCG & Roots of Impact

Investing for Good

Roots of Impact

Root Capital


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