The social sector has been undergoing paradigm shift where discourse is moving from grants to impact investments. The rationale has been to invest in for-profit companies that create measurable social or environmental impact. The profits ensure the model is eventually sustainable and scalable without depending on an external donor.
The last ten years have been coming of age for the impact investing sector in India.
The sector from 2010 to 2019 has impacted 490 million lives in the country with a cumulative investment of $11 billion, finds the study by the Impact Investors Council (IIC) and Asha Impact. The total investment over the years was spread across 600 impact enterprises (for-profit social enterprises).
"In a country like India there is a dire need to have affordable, practical solutions and the way to do that is through impact investing, having products and services that satisfy the need of this large customer base in a way and manner they prefer and want," says Ramraj Pai, Chief Executive Officer, India Impact Investors Council (IIC).
The sector has been in India since early 2000's but it picked up pace post 2005 on the success of micro finance firms. Since then, impact investment has moved on to include other sectors across education, healthcare, and agriculture.
Financial services used to account for 76 per cent of investments in 2010 but was down to 43 per cent in 2019. It is not that funding amount itself has decreased. The reason, says Pai of IIC is that other sectors have grown manifolds over the years.
Also, within financial services, there has been a shift away from microfinance to firms offering solutions for housing, SME, education, healthcare finance, and new fintech models.
"What is interesting is while impact investors provided the seed and Series A funding to these social firms, later stage deals were done by commercial ventures reinforcing the credibility of the concept. Every dollar of impact funding has been able to crowd in up to thrice as much commercial capital," says the report.
Impact investment still has a long way to go, for its potential to achieve Sustainable Development Goals (SDGs). Impact investing has already contributed towards 11 of the 17 Sustainable Development Goals. It can also help raise additional $600 billion private capital needed per annum to achieve India's SDG targets, especially on the first two goals which are a priority for our country (No Poverty and Zero Hunger).
What is really then required to achieve this is pro-active support from the government, targeted policy changes/incentives, promoting liquidity through platforms like the Social Stock Exchange, and credit measures for SMEs and start-ups, suggests the report.