The world’s most pressing challenges – inequality, unemployment, and climate vulnerability – are playing out most acutely in emerging and developing economies. And yet, the businesses best positioned to address these challenges often lack the capital they need to grow.
Philanthropy has a unique role to play here. European foundations collectively spend over €50 billion each year, representing more than a third of global philanthropic capital. However, only a small fraction of that funding reaches small and growing businesses (SGBs) in emerging and developing economies (EMDEs), despite the critical role these businesses play in creating jobs, delivering essential services, and building climate and economic resilience.
The Dutch MFA believes in the power of small and growing businesses to create an amplified impact in EMDEs and wants to uncover aligned interests between philanthropies and public development actors. The ministry commissioned Sagana, who spoke with more than 40 foundation leaders and impact investing experts across Europe. The result is our latest report: European Foundations and Their Investment in Small and Growing Businesses (SGBs) in Emerging Markets. It explores how philanthropic capital is currently being deployed, what barriers exist, and what could shift to unlock far more potential in the years ahead.
Here are five key findings.
- European foundations are largely absent from investing in SGBs in EMDEs.
There are more than 180,000 foundations in Europe. Yet only a handful actively invest in small and growing businesses in emerging markets. Most philanthropic giving remains focused locally or within Europe.
- Foundations often focus on direct giving, missing the chance to catalyze broader investment.
Less than half of foundations investing in SGBs in EMDEs do so with the explicit aim of attracting other investors. By not positioning themselves as catalytic actors, foundations risk limiting the overall pool of available capital, and limiting the long-term success of the businesses they support.
- Many foundations are interested in systemic change, but few are structured to drive it.
A few foundations were created with a mandate to support entrepreneurship or systems-level impact, but most are just beginning to do it. Shifting toward investment and innovation requires leadership, internal champions, and a willingness to rethink how impact is defined and measured. The potential is there, but the transition is far from automatic.
- Endowment capital is largely untapped and has the potential to do more.
Endowments are generally viewed as off-limits when it comes to supporting higher-risk or lower-return opportunities, such as SGB financing. Structured differently, endowment capital could still play a catalytic role, for example, through guarantees or blended finance vehicles. At a minimum, foundations could examine whether their endowments are aligned with their mission or reinforcing the very inequities they seek to solve.
- There is an appetite for collaboration with public actors, but deep barriers remain.
Many foundations express interest in working with governments and DFIs, but see them as slow-moving, overly bureaucratic, or too different in approach. These divisions are hindering both sides. More structured collaboration could unlock significant capital and allow for broader, more sustainable impact.
We hope this report encourages deep reflection and ambitious action. The tools exist, and the resources are available. What’s needed is the will to approach things differently, to move beyond legacy models and step into a catalytic role.
At Sagana, we believe in the catalytic power of capital, supporting foundations to turn bold missions into reality. Let’s start the conversation.