Early in the pandemic, small businesses in the us were handed a lifeline by the taxpayer-funded paycheck protection program, which helped many to stay afloat as revenues collapsed.

Businesses in emerging markets were, however, not as fortunate.

Credit from traditional providers is being pulled in and businesses are seeing major issues with access to working capital, says john simon, a founding partner of total impact capital, a company that helps investment managers set up funds with a positive social impact.

Although many impact investors are eager to support small and growing businesses in emerging markets, the pandemic has made it harder to direct investment.

Travel restrictions and social distancing mean that due diligence must be performed online rather than on the ground, and it is hard for investors to price in new insecurities in an already risky asset class, says amit bouri, chief executive of the global impact investing network, a non-profit group.

To survive, many small and midsize businesses require additional loans. the problem is that in emerging markets, the finance gap for those businesses was already $5tn before the pandemic, according to the international finance corporation, a world bank unit that funds private development in emergent nations. in africa alone, the ifc estimated a pre-pandemic funding shortfall of $330bn a year.

The need is tremendous, because there was both a systematic need that was already there and then the [covid-19] need, says drew von glahn, executive director at the collaborative for frontier finance, which works to unlock capital for small businesses in emerging markets. [however] were not at a stage to solve the systemic problem, he adds.

Impact investors can only ever hope to make a small dent in emerging markets but they have created debt vehicles to support small and midsize groups, often by providing funds to companies that serve or invest in such businesses. some have also adjusted fundraising efforts that existed before the pandemic to reflect the new reality.

Northern arc capital, a non-banking finance company, has joined elevar equity, an impact-focused private equity firm, and set a target to sell $250m in bonds to support alternative lending companies in india. in particular, this initiative aims to assist potential clients that can be overlooked, such as students, women and farmers.meanwhile, lendable, an emerging-market private credit firm, is raising a $100m fund to help small fintech companies.

Impact fund managers face a challenge, especially as the pandemic has exacerbated the risk that many investors already associated with emerging markets.

The perception of risk is always going up with a disproportionate amount of weight than the actual risk, says amie patel, managing director for global partnerships at elevar equity. the firms investments in indian alternative lenders saw a small downturn in the early months of the crisis but have picked up again, with no major concerns across the portfolio, ms patel says.

To ease investors nerves, elevar equity ensures that new backers have a clear idea of the markets their money is used in, and how portfolio companies run their operations. additionally the bond issuance set up with northern arc is spread across different regions in india; it includes loans of various tenures and diversifies risk by incorporating companies at various stages of growth.

Many of the credit managers that target small and growing companies in emerging markets, or the fintech groups that support them, have set up similar structures that blend loans with different risk profiles into one fund.

Impact investors have also adapted to the restrictions on their ability to perform due diligence. nicolle richards, head of investor relations at lendable, says most potential investors for the firms current fund have received approval to move due diligence processes online.

Lendable has done the same. it schedules zoom meetings instead of visiting potential investees and relies more on due-diligence work from equity investors in those companies.

For impact investors globally, not just in emerging markets, the new way of doing things may even come with a benefit.

Globally, impact investors have been forced to collaborate more over the past six months, says meredith shields, who manages the impact investing portfolio and grants at the sorenson impact foundation, an impact-focused group with $150m in assets.

If were looking for a silver lining, she says, it is that heightened and accelerated collaboration will prove beneficial to entrepreneurs.