How to invest for public good and returns

A leading US think tank has launched a new report to encourage impact investing or enabling private investment for public good and financial returns with 30 case studies from around the world, including India.

Designed by The Impact Investing Policy Collaborative (IIPC) as a useful tool to support the development of social impact markets "Impact Investing Policy in 2014: A Snapshot of Global Activity" provides a strategic road map for engaging in the policy making process.

Launched at the Rockefeller Foundation in New York last week, the first-of-its-kind report examines specific policies being leveraged to expand the impact investing market in countries like India, France, and South Africa.

It showcases how impact investing and related policy interventions are positioned in different world markets through exclusive articles and commentary by leading policymakers and practitioners shaping market innovation.

Also cited are examples of specific public policy that have supported market development in different countries.

There are also insights from private firms into how impact investing intersects with other key market areas, such as international development and infrastructure investment.

Noting that India has emerged as a leading hub for impact investing with more than $1.6 billion in investments channelled to support more than 220 enterprises over the past decade, it takes a look at what's next for the world's largest democracy.

The Indian case study authored by Prashant Chandrasekaran and Nisha Dutt, associate vice president and executive director respectively with the consulting practice at Intellecap, forecasts significant growth in this sector.

Impact Investing in India has been driven primarily by local investment managers, who emerged in the early 2000s to fill a void in capital available for entrepreneurs seeking to build sustainable businesses, according to the study.

The focus of impact investing in India has been to direct capital towards underserved sectors and geographies that have been largely ignored by mainstream investors, it noted.

Most impact investors in India adopt a venture approach to investing which involves deploying early-stage risk capital in scalable and sustainable business models.

India's impact investing sector has demonstrated success by leveraging existing resources and policies.

"The robustness of the impact ecosystem, with all the major constituents, along with the substantial body of outstanding issues to e addressed, puts India in a unique position globally," a hub for innovation in social enterprise as well as impact investing, according to the study.

Some sectors, such as the financial inclusion sector, have benefited tremendously from the investment models and available financial instruments, according to the study.

But "other sectors are in need of further progress, entailing a shift toward building a wider array of financing options and sources of capital."

To date, the impact investing and social enterprise sector in India has successfully leveraged the benefits available through existing government policies, such as the Priority Sector Lending (PSL) norms in select sectors, the study noted.

Corporate social responsibility (CSR), it says, "presents a unique and important avenue for channelling domestic private capital to high impact projects, enabling them to achieve sustainability and growth."

Improving on the existing CSR guidelines will go a long way in addressing the financing and growth gaps that exist in the current ecosystem in India, the authors suggested.

"This, in turn, can set a very useful precedent for other countries, as they strive to develop their own impact investing ecosystems supported by both foreign and domestic capital," the study concluded.

The IIPC is convened by the Global Impact Investing Policy Project, a partnership between InSight at Pacific Community Ventures and the Initiative for Responsible Investment at Harvard University, supported by The Rockefeller Foundation.

(Arun Kumar can be contacted at arun.kumar@ians.in)