India will be the launchpad for what is being touted as the world’s largest and first outcome fund for social enterprises, when a fund targeted at the education sector is launched here in February 2018.

The Global Steering Group for Impact Investment (GSG) is helping incubate a new intermediary in India, to be called Social Finance India (SFI), which will raise the world’s first outcome payments fund, according to Amit Bhatia, CEO, GSG.

The outcome payments fund, targeted at the education sector, is likely to be called India Education Outcomes Fund, he told BusinessLine .

SFI, according to him, will be a not-for-profit company and the outcome fund will be raised from philanthropists, institutional donors, CSR money and governments. The company is currently being incorporated and its key executives and anchor funders will be announced in February 2018, when Sir Ronald Cohen, Chairman, GSG, will be in India for that event. Ashish Dhawan, private equity professional-turned-philanthropist, is expected to be roped in as an executive in the SFI.

According to Bhatia, the GSG is also incubating another education outcome payments fund for Africa/West Asia. These outcome funds will attract matching impact capital. They will invest in for-profit and non-profit education service providers, which have to undertake to work with government schools to deliver contracted outcomes. These outcomes may be early childhood interventions, primary school learning outcomes, retention rate of girls in secondary schools or employability of students after high school.

Indian context The focus on education outcomes is to channel more impact investment into a sector crucial to achieve the United Nations’ Sustainable Development Goals, especially SDG4, which talks of ensuring inclusive and quality education for all and promoting lifelong learning.

Bhatia refers to various reports in the Indian context that paint a poor picture of the learning outcomes now – children in grade 5 not being able to do grade 3 mathematics, a child in grade 8 not being able to read grade 5 books, an enrolment rate of around just 20 per cent in colleges and high teacher absenteeism.

“We want to change all of that,” he says, of the outcomes fund’s goals. “We have decided time to change this has come and private capital has to lead the way. I think it has been too long that we kept hoping and leaving this to the government. We are not asking governments to abdicate responsibility. We have found ways in impact investing to unlock private capital in a way it could never happen earlier,” he adds.

New instruments He said the outcomes fund, which would also give an exit option for the investors, would be accompanied by a risk fund for impact capital. Both would be large in size. The impact investment sector had come up with two new instruments – Social Impact Bonds (SIBs) and Development Impact Bonds (DIBs) – having features of both equity and debt, and of three-four year duration. The first SIB was created in the UK about 10 years ago, to bring down the re-offending rate at Peterborough Prison. Recently released results showed that recidivism was down by 9 per cent, higher than what was committed by the NGO that offered to work on that project. The impact investors in this project, Bhatia said, made money.

The GSG is an independent steering group for impact investment – investments in ventures that are meant to have a noticeable impact on the lives of the poor and on society – and it estimates that by 2020, impact investments will touch the lives of a billion poor people from about 500 million so far. Over $150 billion in investments has gone into the sector, delivering market-based financial returns of 6-9 per cent. Bhatia said in the next three years, another $150 billion would be unlocked worldwide and the impact investment market would double to $300 billion by 2020. Annually, nearly $20 billion goes as investment into social enterprises. Five years back, micro-finance was the biggest recipient of impact investment and right now it was affordable housing, which Bhatia expected would continue to stay as the biggest sector in the world.

Bhatia said the US was and would continue to remain the world’s largest market, both in terms of source of capital and destination of capital. An interesting development was that large private equity funds had also got into impact investing. Private equity major TPG recently announced The Rise Fund to make impact investments. It had raised about $2 billion. With TPG showing the way, Bhatia expected other large private equity players to enter the impact investment sector.