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

Monday, February 9, 2015

With President Obama concluding a successful visit to Delhi, the Indo-US bilateral agenda is now poised to move ahead on nuclear and renewable energy, defence collaboration, trade and investment and several other important issues. However, we at Asha Impact, a social investing and public policy organisation, believe one major issue was not explicitly addressed, both in the official dialogue and the extensive media coverage. An issue that both countries can seize upon to effectively leverage the convergence between India’s overriding objective of inclusive growth and the United States’ strategic interest in seeing India succeed in its development path.

The issue is the set of institutional developments around what is characterised as social impact investing, or using market-based approaches to tackle the toughest social issues and achieve meaningful poverty alleviation. Social impact investments – defined as investments that intentionally target social objectives along with financial return and measure the achievement of both – have been picking up pace in India over the last decade. They involve equity and debt investments in for-profit businesses that provide basic services to low-income communities or which increase the incomes of people by engaging them in supply chains.

Impact investing is a global phenomenon. It has recently received policy attention at the highest levels in the G8 countries with the formation of the Social Impact Taskforce and the setting up of national advisory boards in several member countries including the United States. The work of the taskforce has focused attention on key issues such as metrics for impact measurement, asset allocation by institutional investors, corporate governance structures and, ultimately, on the application of social impact investment for international development.

India happens to be a global leader in this space, a hub of social entrepreneurship activity and a testing ground for innovations that can scale across the globe. India is a unique place to experiment with different, innovative business models – first, due to the variety and scale of the problems that the country faces, and second, because of its thriving entrepreneurial eco-system and talented social entrepreneurs willing to build businesses that help address those problems. Indeed, the last decade has seen impact investing expanding from the microfinance and financial inclusion space to many other sectors like access to renewable energy, affordable healthcare and education, water and sanitation, low-cost housing, agriculture and non-agri livelihoods and vocational training.

Several US-based philanthropists, notably Bill Gates, Pierre Omidyar and Michael Dell, have set up foundations that are active in making social investments in such enterprises, in addition to substantial capital from development finance institutions like the International Finance Corporation (IFC) to both private equity funds and direct investments in social enterprises. More recently, several successful business and entrepreneurial leaders in India have started to make a contribution to the field, setting up foundations and making angel investments in a range of social enterprises. Overall, India is at the forefront of the impact investing revolution.

How, then, can the United States and India leverage the power of social impact investing to harness entrepreneurship, innovation and capital to solve the toughest problems facing our society? Below is a five point agenda for the governments to consider: