Investors keen on putting money in social enterprises: McKinsey

Our Bureau New Delhi | Updated on January 15, 2018 Published on November 16, 2016

Impact investing sector could absorb $8 b of capital, provided critical barriers are addressed

Investors are focusing more on investing in companies with the intent to have measurable social impact, according to a new research by McKinsey.

According to McKinsey, “impact investments” in India have reached over $4.1 billon over the last six years and was growing at 15 per cent, annually.

Toshan Tamhane, Senior Partner, McKinsey & Company, said, “India is one of the world’s biggest markets for impact investing, given the nation’s many pressing social needs and an abundance of global capital. Assuming a growth of 20-24 per cent based on global rates and strong growth of underlying sectors, we estimate that India’s impact investing sector could absorb $6-8 billion of capital annually by 2025, provided some critical barriers are addressed by the industry and the government.”

‘Seeding’ role

The management consulting firm said the investments would have impacted 60-80 million lives last year across sectors such as financial inclusion, agriculture, healthcare and education.

“The research indicates that in 67 per cent of social enterprises, focused social impact funds have led the first investments, demonstrating the vital importance of impact investors in helping socially relevant enterprises grow and prosper.

“In fact, impact investors have played a critical “seeding” role accounting for 60-70 per cent of investments in deals with ticket size less than $5 million,” the company said. Conventional private equity and venture capital funds have also been involved in impact investing, McKinsey said, estimating that they invested in 44 per cent of deals by value and 32 per cent of deals by volume as sole investors.

Some of the key focus areas for impact investors are clean-tech (77 per cent by value), followed by financial inclusion (14 per cent by value), it said.

“On the other hand, dedicated impact investor funds have invested in 22 per cent of deals by value as sole investors. The funds have been invested in a broader mix of sectors, financial inclusion (51 per cent by value), clean-tech (31 per cent by value), education, healthcare, agriculture, etc (18 per cent by value),” it added.

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Published on November 16, 2016
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