Tycoons turn saviours: Impact investment to touch $8 bn by 2025 in India

Having spent enough time financing big-ticket corporate deals, Indian entrepreneurs are now driving a different agenda -- combining profits with philanthropy through 'impact investment'. According to the latest McKinsey report, the Indian impact investment space has seen $4.1 billion worth of investments in the past six years, a period during which the market attracted more than 50 active impact funds.

 

According to the report, impact investment in India could grow to $8 billion a year by 2025. The global market for impact investments is projected to grow to $300 billion or more by 2020, according to the Global Steering Group on Impact Investment. 

 

What is impact investment?

 

Entrepreneurs who saw their ideas turning into billion-dollar companies over the past several decades are now increasingly looking for ways to direct capital toward the goal of making other people’s lives better. 

Impact investment is defined as investments "made into companies, organisations, and funds with the intention of generating a measurable, beneficial social or environmental impact alongside (or in lieu of) a financial return."

Source: Hawaii People's Fund

 

What does impact investment mean to India?

 

Opportunity for corporates, investors

 

As momentum around impact investing continues to build, there is an increase in both investment opportunities and funds committed by impact investors.

 

The days when doing social good while making money in the process seem to be over. Companies now realise that a positive social impact is only sustainable if the business model is viable. And this has made life easier for venture capital firms that don’t have to stay away from certain startups.

 

Between 2010 and 2016, India attracted over 50 active impact investors, who poured in more than $5.2 billion. About $1.1 billion was invested in 2016 alone, according to McKinsey. “At least 60-80 million lives were touched last year across socially relevant sectors like financial inclusion, agriculture, health care and education,” the report added.

 

In 67 per cent of social enterprises, focused social impact funds led the first investments, demonstrating the vital importance of impact investors in helping socially relevant enterprises grow and prosper. Impact investors accounted for 60-70 per cent of investments in deals with ticket sizes less than $5 million.

 

On the other hand, dedicated impact investment 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 compared with the conventional private equity (PE) and venture capital funds, covering sectors such as financial inclusion, clean-tech, education, health care and agriculture.

 

Impact-focused investors active in India include the likes of Lok Capital, Caspian Investment Advisors, Unitus Seed Fund, Omidyar Network, Accion, Elevar Equity, Intellegrow and Omnivore Partners. Impact investments also generated strong returns for investors, noted McKinsey.

 

Impact investment that "touches lives"

 

Impact investing can be a vehicle to fund, catalyse, and scale approaches that improve millions of lives. India, at the moment, ranks 93rd among 135 nations on the Social Progress Index, highlighting the huge funding gap that threatens to slow down the development of social infrastructure.

 

The Economic Survey 2016-17 revealed that India needs to strengthen social infrastructure by investing in health and education as it is emerging as a knowledge-based economy. As a percentage to GDP, the expenditure on social services was at 7.4 per cent during the financial year.