Indian Impact Investing Comes Of Age, Raises $11 B In Capital, Touches 490 Million Lives

IIC-Asha Impact launch the first comprehensive study analyzing capital flows, business model innovation and cumulative impact across social sectors over the last decade

Indian Impact Investing has come a long way over the last ten years and has made a measurable contribution to India’s development sector over the last decade. A first of its kind study by the Impact Investors Council (IIC) and Asha Impact on the state of impact investing in India reveals that the sector has impacted more than 490 million lives in the country with a cumulative investment of $11 billion spread across 600 impact enterprises. More importantly, it has done this by driving business model and technology innovation focused on service delivery at the last mile in a financially sustainable and scalable manner needed for sustained impact.

Five key findings of the report are as follows:

Strong growth: $10.8 billion of total equity capital has flowed in over the decade, at a CAGR of 26%, with rapid growth over the past two years. The sector has been around since early 2000s but picked up pace post-2005 on the success of financial inclusion. The impact investing industry faced a test with the microfinance crisis in 2010, but since then funding has grown 8x in terms of annual deployment.

De-risking business models to the crowd in commercial capital:  Every dollar of impact funding has been able to crowd in up to thrice as much commercial capital. Impact investors have played a critical role in bringing in seed and Series-A funding with commercial funding dominating in later-stage deals.

Large scale impact across sectors: Indian impact investing has impacted ~200 million people through improved service delivery across four key social sectors: financial services (FS), education, healthcare, and agriculture; and further 300 million people through the strategic use of technology for development.

Contribution to UN Sustainable development goals: Impact investing has contributed towards 11 of the 17 Sustainable Development Goals and can help unlock part of the $600 billion of additional private capital needed per annum to achieve India’s SDG targets, especially on the first two goals which are a priority for our country (No Poverty and Zero Hunger).

Successful diversification beyond microfinance and financial services: The sector which has traditionally been associated with microfinance has successfully diversified into core social sectors like agriculture, healthcare, and education. Financial services used to account for 76% of investments in 2010 but was down to 43% in 2019, and just 30% of total deal volume over the decade. In the same period, impact investments in healthcare, education, agriculture, energy, and technology for development have increased their share. Within financial services, there has been a dramatic shift away from microfinance to housing, SME, education, healthcare finance, and new fintech models.

Despite these impressive achievements, the potential of impact investment – to dramatically improve outcomes at scale – remains unfulfilled. The report also highlights steps to meaningfully tackle India’s socio-economic challenges, exacerbated by the dramatic headwinds unleashed by COVID-19 and underlines the urgent need to scale impact through a more intentional and proactive partnership between the government and private sector.

Proactive Government Support: The government needs to provide pro-active support to the sector through capital deployment, targeted policy changes/incentives, promoting liquidity through platforms like the Social Stock Exchange, and credit measures for SMEs and startups.

Private Capital for Public Good: Impact investors need to attract greater amounts of private capital, expanding the global and domestic investor base, and further build the market for early-stage as well as patient equity, and debt risk capital.

Innovative Financing Models: There is much greater potential for use of outcome-based or pay for success funding instruments like impact bonds and guarantee structures to improve the effectiveness of public and philanthropic spending and unlock additional private risk capital.

Nurturing and Scaling Impact Enterprises: Impact investors need to continue identifying and scaling the best bottom-of-pyramid focused innovations across key social sectors, helping them with follow-on capital and strategic support to create impact at a national level and make responsible and regular exits.

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