Impact Investing Faces Hurdles

Tuesday, August 17, 2010

Impact investing encapsulates a growing sector of private and public funds that finance for-profit companies focusing on services and products for the poor. It has attracted increasing investor and policymaker interest in recent years, but its development still faces hurdles.

Achievements such as those Muhammad Yunus, founder of the Grameen Bank in Bangladesh and Nobel Peace Prize winner in 2006, and Banco Compartamos, which attained an IPO in Mexico, creating attractive returns for investors, captured the attention of financial markets and policymakers in the last decade. Yet while microfinance institutions are a $25 billion market worldwide, according to Monitor Institute calculations, they represent only half of the dollars in impact investing worldwide:

–An important challenge for companies in this sector is to offer products and services that low-income populations require, which range from clean water to solar-powered lamps to mosquito nets, at prices they can afford.

–Although margins tend to be low, given clients’ low purchasing power, private sector investors are often attracted by the scale of the potential market at the “base of the pyramid.”

Source: Oxford Analytica (link opens in a new window)