An Impact-Linked Loan is similar to a traditional loan, with the main exception that interest rates (potentially even repayment obligations) are tied to borrowers’ achievement of pre-defined and independently verified social outcomes. The enterprise receives “better terms for better impact”. The higher the impact achieved by the impact enterprise, the lower the interest rate to be paid. In specific scenarios and contexts (e.g. particularly difficult market environment or crisis) additional loan forgiveness can be agreed upon for achieving additional pre-defined outcomes.


High-impact enterprises gain access to loans with (highly) favourable terms and are incentivised to maximise their impact.

Can replace

Traditional debt, grants, and (other) blended finance instruments

Risk/Return Profile


Enterprise Lifecyle

All stages


Various (but needs time to create positive outcomes)

Defining Criteria

Interest rate linked to impact:
Interest rate (and potentially repayment) is linked to direct and measurable impact, and follow the concept of better terms for better impact.
Financial reward for impact:
Rewards range from discounted interest payments to partial or even complete forgiveness of the loan repayment.
Incentive for impact:
Strong incentives for impact enterprises to outperform on positive impact.
Impact verification:
Independent verification of the achievement of predefined outcomes
Term maturity:
Impact-Linked Notes have usually longer tenors (~3-5 years) than traditional loans.
Impact-Return trade-off:
Investors are primarily motivated by impact (catalytic funders/impact-first investors) as they are expected to take lower returns, unless they are compensated by an outcome funder.

Interesting Variants and Options

  • Impact-Linked Loans with compensation by public or philanthropic funder::
    • Public or philanthropic funders can provide investors with a compensation to make up for their lower returns resulting from more favourable terms for the enterprise (blended finance).
    • In addition to compensating for lower returns, they can provide capital in form of grants, which can be used to reduce investment risks for investors, e.g. by (partially) covering first losses.
    • Parts of the grants provided to impact investors to compensate for the lower return can be used by the lender for zero-interest loans. The combination of non-interest-bearing capital from donors with the impact investors’ interest-bearing capital, lowers the total interest rate to be paid by the impact enterprise.


  • Impact-Linked Convertible Loans:
    • Once a pre-defined trigger (e.g. qualified equity round) is reached, the loan (fully or partially) converts into equity.
    • The discount applied depends on the impact performance – the higher the impact the lower the discount.


  • Impact-Linked Revenue-Share Agreements:
    • Within a pre-defined range (regular rule-based adjustment), the level of revenue share is linked to the social enterprises’ impact performance – the higher the social outcomes, the lower the revenue share or the total amount to be paid back (e.g. reducing the multiple).

Source: Innovative Financing Toolkit, BRIDDHI, 2020

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