Impact investing is becoming more institutional, more mainstream, and increasingly focused on mobilizing domestic capital. But as private capital moves deeper into development finance, the people and markets furthest from opportunity may still be the hardest to reach.

Experts say that private capital for impact investing is growing. It can help build markets around aid, accelerate its delivery, and finance businesses that serve development needs — but they agree that it cannot replace the public money underpinning them.

“Impact is becoming much more institutional,” said Elizabeth Boggs Davidsen, CEO of GSG Impact. “It’s no longer a sort of bespoke fund manager.”

She pointed to growing interest from domestic savings, banks, insurance pools, and sovereign wealth fund managers. And alongside that institutionalization, she said, the sector is increasingly turning inward — toward the capital already sitting in low- and middle-income countries.

When it comes to those local markets, Boggs Davidsen, previously vice president of the Office of Development Policy at the U.S. International Development Finance Corporation, argued that the problem in many emerging markets is not necessarily a shortage of capital. It is the lack of conditions that allow existing capital to be deployed toward impact.

“The typical assumption is that capital is really the challenge, but increasingly you see that capital is abundant in many of these markets, particularly domestic capital,” she said. “But how do you enable it? What is the connective tissue, the conditions that enable you to unlock that capital and put it to work for impact?”

GSG Impact has been working on those conditions, she said, including local coordination, transparency and accountability measures, as well as regulatory changes that allow institutional investors to allocate capital differently.

One example comes from the Netherlands, where GSG Impact’s national partner challenged institutional investors to voluntarily allocate up to 10% of assets under management to impact. After three years, Boggs Davidsen said that about 8% had already been achieved.

The approach is now being adapted in Ghana, where a fund-of-funds structure has been anchored to domestic pension capital. But getting there required more than simply identifying a pool of money. It required regulatory changes, investor education, building an investment pipeline and philanthropic capital to de-risk institutional investment.

Read the full article at Devex: Impact investing goes mainstream, but who gets left behind?