NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, February 28, 2014

Some may be surprised to hear it, but impact investing would barely exist — certainly not at its current, modest scale — but for the support and partnership of government. Government is ubiquitous in all economies, to be sure. But in the types of underserved markets in which impact investors operate, the role of public policy is profound.

Consider the Community Reinvestment Act in the U.S., which underpins a $60 billion community finance sector, or the Small Business Investment Companies (SBIC) program at the U.S. Small Business Administration (SBA), which invests $8.8 billion and leverages another $9.4 billion in private capital into over 300 funds. Consider also Big Society Capital, which with nearly a billion dollars in anchor funding from the U.K. government will invest in a variety of social ventures across the country, or the $333 million set aside for impact investing from the U.S. government’s Overseas Private Investment Corporation (OPIC).

These are big numbers, with big impacts. Among the companies initially supported by the SBIC program over the years — since 1958 — are Apple, Fedex and Costco. And yet the importance of government is often underestimated once we become distracted by the thrust and parry of the investment process.