Achieving the ambitious Sustainable Development Goals (SDGs) by 2030 will take an estimated $5 to $7 trillion per year, with a financing gap of $2.5 trillion in developing countries.In India alone, the outsize challenge has been translated into a financing gap of $565 billion. While the country has seen huge progress across the social sectors, enormous challenges remain. For example, only slightly over half of all children enrolled in standard 5 can read at least a standard 2 level text, while just 21% of mothers receive full antenatal care.
Closing this gap requires action on several fronts; efficient and effective domestic resource mobilisation, outcome-focused donor efforts to ensure that money is spent well and harnessing private capital for good. In recent years, interest has grown globally amongst governments and markets to develop new investment approaches, such as impact investing or purpose-driven finance. Impact investment refers to the provision of finance to organisations with explicit expectations of financial returns as well as measurable social outcomes.
According to a recent analysis by the Global Impact Investing Network (GIIN), over 1,300 organisations manage $502 billion in impact investing assets globally. The impact investing sector in India attracted over $5.2 billion between 2010 and 2016, with over $1.1 billion invested in 2016 alone.
With the emergence of impact investing as a new asset class in India, investors are not only providing capital and support to social enterprises but also growing to understand the potential of this new form of investing. Given the risks and complexities of serving the social finance sector, several innovations have emerged – not only the way capital is structured but also how impact is delivered. There has also been a rise in public-private partnerships, largely driven by government budgetary constraints, the new public management ethos and the fact that innovation is increasingly cooperative and network-based. Financing development through extra-budgetary means and public-private partnerships offer potential solutions, such as a focus on outcomes and improved performance management for service providers.
India has a thriving social enterprise ecosystem; many organisations, however, struggle to access the capital they need. In a survey of Indian social enterprises, 57% identified access to debt or equity as a barrier to growth and sustainability. And despite the developing ecosystem and potential of the impact investment space, the literature on impact investing in India is limited. The number of impact investors in India, the sectors and areas they choose to invest in and the future of instruments remain unclear. This report aims to provide an analysis of the state of the impact investing sector in India, with specific focus on the health, education and agriculture sectors, as well as examining how impact is measured. The report also investigates several instruments, including equity and debt investments as well as market-based, innovative solutions such as social and development impact bonds (SIBs and DIBs hereafter) and innovation or outcomes funds.
Main Findings and Policy Recommendations
Each chapter of this report provides stakeholders with takeaways and learnings from the survey and research around impact investing in India. With the first chapter, we outline a history of the Indian impact industry and initial results from the survey – these touch on average sizes of investments, types of investments, average returns across the industry and some sector-level analysis of returns. In the second chapter, we deep dive into key sectors of investment— primarily, health, education and agriculture and present trends and challenges investors face while operating in these markets. The third chapter presents information on innovative financing tools such as social and development impact bonds, the market in India and the future of these novel approaches. In the fourth chapter, we show trends on measurements of impact and provide guiding steps for the industry to define impact more transparently and robustly.
Through the course of our research, we find several trends, many that mimic the international market and many that remain unique to the Indian context. Our main findings show how the Indian impact investment story is continuously evolving and changing. Impact investments are shifting from financial access, microfinance and energy towards traditional philanthropic sectors such as health, education and agriculture. Average returns beat market returns, even in sectors which are traditionally social sectors with low returns. We see impact investors playing hybrid roles, somewhere between private equity (PE) investors and accelerator/incubator style mentors. And find a strong focus on tech-based investments to achieve scale and reach. We find impact to be defined loosely and a lack of cohesion on measures and indicators at a sectorial and investment level. And a need to build an evidence-backed knowledge base for innovative financing and impact bonds.
The last chapter of the report provides key policy recommendations to build a case for mainstreaming impact investment as a complement to government and philanthropic spending. We aim to contribute to the conversation around outcome-based approaches. We recommend impact investors move beyond “easy-finds” and push for innovations beyond tech-based solutions. And the acceptance of global best practices and the promotion of greater transparency in measurements, through coordination and facilitation by industry organisations, such as the Impact Investors Council and Quality Council of India (QCI). We recommend investments of time and energy on search processes and truly filling gaps in provision, by bringing innovations in products and solutions. We also recommend the investigation of outcomes contracting at scale through the creation of an Outcomes Fund at a government or quasi-government level. Ultimately, a robust Indian impact investment market will depend on accurately identifying and improving hindering factors and constructing a strong ecosystem that fits its needs.
For more information, please see the report attached below.
The report was originally authored by Shamika Ravi, Emily Gustafsson-Wright, Prerna Sharma and Izzy Boggild-Jones, posted on www.brookings.edu on July 1, 2019.
Photo Credit: Global Alliance for Livestock Veterinary Medicines
DISCLAIMER:
The views expressed in the blog and report are the author's own and do not necessarily reflect those of the SDG Philanthropy Platform. The SDG Philanthropy Platform is a global initiative that connects philanthropy with knowledge and networks that can deepen collaboration, leverage resources and sustain impact, driving SDG delivery within national development planning. It is led by the United Nations Development Programme (UNDP) and Rockefeller Philanthropy Advisors (RPA), and supported by the Conrad N. Hilton Foundation, Ford Foundation, Oak Foundation, Brach Family Charitable Foundation, and many others.