With the evolution of investment practices in this era of financial freedom across the globe, a new investment tool - impact investing has been slowly and steadily finding its feet allowing for the best of both the worlds. Simply speaking impact investing is the name for strategic investment opportunities enabling investors to gain by investing capital in businesses that can generate financial returns and also helping a larger social incentive like a social objective or an environmental cause. Impact investing as the name suggests allows for mutual growth of business financially as well as social objectives and responsibilities for a larger cause.
Understanding Impact Investing:
The term impact investing was conceptualized over a period of time merging investment opportunities with social responsibility with philanthropic objectives. The term coined by New York Times columnist Paul Sullivan, allows investors to make financial gains by allowing investment opportunities in companies that focus on business success in synergy with social responsibilities.
Based on a hybrid investment model, impact investing allows traders and investors to invest in businesses that not only generate financial returns but have an intention of impacting social causes. Impact investments are structured in a similar manner as venture capital opportunities combining monetary benefits with social causes known as Triple bottom line or Blended value. While social responsible investing allows for keeping out the negative influences any business or company may have on its investors and business in the long run, impact investing calls for evaluation social and environmental performances as an intrinsic part of the investment process.
Role of Impact Investing in India:
There is no denying the fact that India is an emerging economic powerhouse and one of the top investment destinations across the globe. But there is another face of India which accounts for over 90% of the Indian poor rural population lives less than 2 USD per day. This large poorer section of the Indian society remains untouched by the development and economic advances that are usually urban centric drives.
Even large corporations and business sector remains confided to the urban centers thereby ignoring the rural population of India. The government does its bit off and on to help reduce poverty in the rural sector but the sheer quantum of large population makes it impossible for positively affecting large pockets of society.
Owing to this indifferent attitude by the government and established business powerhouses, some enterprises also popularly known as social enterprises have taken on the responsibility and the challenge to bring innovative yet affordable products and services to cater to the poor sections of the Indian society and help them lead better lives.
How Impact Investing Works:
Since getting funding for such social enterprises were traditionally dependent on angel investors or seed funds by the social entrepreneurs, with impact investing there has not only been global awareness for such projects but a large influx of money owing to investment by a growing set of wealthy investors including various funds and social foundations.
According to a latest figures released by the Planning Commission of India impact investment has brought massive investments to the tune of Rs 1,200 crore in the social sector in the past five years. Since impact investing is still in its nascent stages in India, a lot of early stage investors who are usually first time institutional investors in any company but come well equipped with an understanding of specific customer needs and are able to better appreciate the processes followed by the companies.
Impact Investing Goes Beyond Microfinance:
Most impact investment opportunities were initially confided to the micro lending and microfinance space but with the bad press for such micro lending institutions, a lot of impact investment opportunities have opened up for other social sectors including health care, sanitation, healthcare sector as well as cooperative businesses. So much has been the positive role of such impact investment in the social sector in poor nations like India that a recent JP Morgan report has estimated that high net worth investors are likely to allocate a minimum of 10 per cent of their portfolio to such social endeavors.
Active Impact Investing Funds in India:
The entry of impact investors in the Indian market is a welcome sign and augurs well for the social entrepreneurship sector with a lot of opportunities to create money as well as make a social difference in the lives of the poor. As of now, the Planning Commission of India has listed around 17 impact investment funds that are active in India and operating successfully to cater the needs of the social entrepreneurs.
Prominent impact investing funds active in India include the Lok Capital International Finance Corporation, India Financial Inclusion Fund, Susan Dell Foundation amid others.