IMPACT INVESTING is an emerging hybrid of philanthropy and private equity.
There are few who believe in the theory that you must give back to the society that you have taken from it. For such investors, ‘Impact Investing' is suggested which is an amalgamation of philanthropy and equity investing. Such form of investing lets you earn profits while also providing the satisfaction that you have improved the lives of many.
Impact Investing provides an intentional social and/or environmental goal. It is the latest jargon in social impact arena. ‘Impact Investing' coalesces around a core idea which helps it to gather more gas and dust from diverse players, each with a common vision and goal.
It is an emerging hybrid of philanthropy and private equity. There have been instances where social impact bonds have become a part of impact investing and are on the way to achieve their social plus financial goals. The later section will help us in understanding how they have impacted individuals' lives.
How big is it?
A report by Monitor Institute, a think tank and the research arm of Monitor estimated in 2009 that impact investing could grow to account for one per cent of assets under management globally, about $500 billion, over the next five to ten years.
Another study led by Mr Nick O'Donohoe of J.P. Morgan and Mr Antony Bugg-Levine of the Rockefeller Foundation suggest that five broad social sectors — water, health, housing, education and financial services — could absorb $400 billion to $1 trillion in capital and generate $183 billion to $667 billion in profits.
So, the question arises — would there be a rush among centa-millionaires (individuals having $100 million of investible surplus) and Ultra High Networth Individuals whose numbers are rising exponentially all over globe particularly in South East Asia? Would Public Private Partnerships (PPP) be actively involved in this? Does the practice of enterprise philanthropy fits into it?
In hindsight, there are some sectors which directly come under the purview of impact investing — water, health, housing, education and financial services. However, there are others too — agriculture and energy which fit into it. One may find impact capital in large but can it be scaled? Would we be able to see ‘the next microfinance revolution' all the way from idea to scale in other social sectors as mentioned?
Who are active — globally and in India?
Globally impact investing is a known market where the philanthropists put their impact capital and the capital goes towards creating a better life. In return, some look for financial returns plus the positive impact. In UK, social impact bonds rely on private-sector funding which helps in tackling recidivism — the problem of repeat offenders.
The well known face is the Acumen Fund, a pioneer among impact investors which is present in India also making efforts to increase the smile on the faces of direct beneficiaries with the help of direct contribution from impact capital contributors.
The fund bought shares worth $2.5 million from Ziqitza Healthcare which started an ambulance service in Mumbai and expanded to Rajasthan, Punjab, Bihar and Kerala. Ziqitza's charges vary depending upon the patients' ability to pay.
The poorest patients, usually those seeking admission to the general wards of Government-run hospitals, pay half the standard rate. Around 20 per cent pay nothing. Because of Ziqitza's mass services to society, they have won more than $80 million in Government contracts which itself says that the blueprint can be scaled.
Another story is based in a distant village of Bihar where Husk Power Systems (HPS) started by a group of individuals who pared their foreign dreams and electrified the life of many villagers who had not seen electricity in their life. Yes, it comes at a cost which they are happily ready to pay. HPS uses innovative technology to convert abundant rice husks into energy that provides power.
The technology has covered 150 villages and plans to cover 20,000 villages for which they require the impact capital. The return may be slow and distant but the changes and smiles are visible on the faces of the villagers.
There are many other examples where big ticket impact capital is involved.
However, on retail scale, one can invest in many NGOs and social institutes which are actively involved in changing the faces. In 2011, HDFC Mutual Fund launched HDFC Debt Fund for Cancer Cure where the dividends proceeds from the fund would be eligible for deduction under Sec 80G and the proceeds would be utilised by Indian Cancer Society (ICS) to financially assist underprivileged cancer patients in meeting their astronomical treatment costs.
In this joint initiative, investors are also happy as they are contributing to the society. So, selecting the business model and entrepreneur is very important with more stress on the entrepreneur. Rightly said, business models can always change, but it is harder to change entrepreneurs.
Microfinance brought revolutionary changes in under-financed areas; however, it acquired negative traits as the efforts got disoriented ignoring the masses and their life. So, it is very important that there should be proper ‘if' and ‘but' if the project is oriented towards a social cause.
Happy Impact Investing!
(The author is Senior Manager, Third Party Products Research, Motilal Oswal Securities Ltd. The views are personal)