Private debt and fixed-income instruments have become the most popular tools used by impact investors, with returns that are competitive with mainstream products, according to a new study.

Debt instruments in the impact investing space have also shown themselves to be resilient investments, even with their focus on building economic infrastructure in some of the poorest parts of the world, researchers said.

"The other thing that was very encouraging was the quality of the underlying investments," said Abhilash Mudaliar, GIIN's research director. "Write-off ratios ... were below 1 percent, which is very encouraging."

About 34 percent of the $114 billion impact investing market consists of instruments such as private debt income funds (PDIFs) and community development loan funds (CDLFs), according to a report by the Global Impact Investing Network (GIIN) and the impact investing firm Symbiotics. The next largest sectors of the impact investing market consist of real assets (22 percent) and private equity (19 percent), the report said.

"Impact investments in private debt are an attractive option that can yield a stable return and drive capital toward powerful global progress," GIIN CEO Amit Bouri said.

The report, released on Tuesday, focused on how private debt is being used in impact investing, and it gave particular attention to PDIFs and CDLFs, the latter of which invest exclusively in low-income communities in the U.S.

"These funds have varying capital structures, but mostly rely on equity and debt capital from investors such as pension funds, foundations, banks or public sector funders," the report stated.

The report indicated that impact investors are gravitating to debt instruments because they offer stable returns, a variety of risk-return strategies, uncorrelated returns and a wide range of sectors in which to devote assets. PDIFs seeking market-rate returns, for example, had average returns of 2.6 percent between 2012 and 2016, while CDLFs paid an average of 2.9 percent to holders of their notes, according to the report.

The report also said that PDIFs have a Sharpe ratio of 0.77, "which compares favorably to other traditionally stable asset classes, such as bonds or cash."

Private debt in the impact investing market covers a wide range of missions, according to GIIN. PDIFs, the report found, are most focused on the financial sector, including microfinancing, but are also involved in projects in the areas of arts and culture, education, energy and food and agriculture. Their largest areas of focus are Eastern Europe and Central Asia, followed by Latin America and the Caribbean. Investors in these funds are split between institutional (37.9 percent) and retail (33.5 percent), the report said.

"Generally, investors are motivated by the challenge that large proportions of individuals in emerging markets do not have access to even basic financial services, such as even a bank account," Mudaliar said.

In addition to microfinancing, projects include micro insurance and savings products, and effort to make financial services available to underserved populations, he said.

"This helps them improve their financial stability and moves them out of poverty," Mudaliar said.

The top themes of CDLFs, meanwhile, are employment generation, affordable housing and food security, according to the report. The report looked at 102 of these funds, a group holding $5.6 million in assets, and found that they are relatively small, and had a median of $25 million under management as of December 2016. Nearly all the funds target below-market-rate returns and raise capital through notes issued to investors, the report said.

"Microenterprise-focused funds have the highest provision for losses, while funds focused on housing and community facilities have the lowest," the report stated. Only 0.6 percent of CDLF loans were written off in 2016, according to the report.

GIIN officials said the report supports the argument that impact investing returns can be competitive with mainstream products.

"Interest and activity in impact investing has grown rapidly in recent years. This has been aided by the growing body of evidence on financial performance, which has shown that impact investments can generate returns that are competitive with conventional investing,” said Mudaliar. “This report shows that the same is true in the private debt asset class."