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

Tuesday, February 28, 2017

Businesses that tap a large number of customers in the lower-income bracket and are established with a clear social objective are increasingly becoming an attractive asset class in India, as they are globally. In India, while rural micro-credit, and then urban microfinance, saw growth and success over the last two decades, these businesses are now coming to the fore in a growing number of verticals and catching serious investor interest.

Impact investment is not philanthropy. Global data on funds established between 1998 and 2010 show that equity funds investing in these assets have shown healthy returns that are often less volatile than other assets. There have been years in which impact funds have outperformed normal funds and there have been years when they have lagged; generally, smaller impact funds have outperformed marginally.

Given the efforts of the Impact Investors Council (IIC), data gathering is becoming more robust in the industry and should help with benchmarking returns; a recent study—by an international consulting firm and the IIC—of impact funds in India is expected to confirm a similar returns trend.

From our experience at Caspian, there is evidence to show that these ventures generate dependable returns while innovatively addressing long-standing social challenges.