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(From left) Rajiv Lall, founder MD and CEO at IDFC Bank; Sandeep Farias, founder and MD at Elevar Equity, LLC; Roopa Kudva, MD at Omidyar Network India Advisors; and Amit Bhatia, founding CEO at IIC, with MoS finance Jayant Sinha (sitting). Photo: Pradeep Gaur/Mint
(From left) Rajiv Lall, founder MD and CEO at IDFC Bank; Sandeep Farias, founder and MD at Elevar Equity, LLC; Roopa Kudva, MD at Omidyar Network India Advisors; and Amit Bhatia, founding CEO at IIC, with MoS finance Jayant Sinha (sitting). Photo: Pradeep Gaur/Mint

Push to formalize impact investments

Industry body IIC has submitted recommendations to the finance ministry advocating recognition of impact investing as a separate asset class

New Delhi: Putting in money for social development is believed to be the responsibility of either the government—as part of the welfare for its citizens—or charitable rich individuals and institutions.

But industry body Impact Investors Council (IIC) suggests otherwise. Keen to create a formal industry for impact investments, IIC has submitted recommendations to the finance ministry advocating recognition of impact investing as a separate asset class ahead of India’s first impact investor conclave to be held in November later this year.

Impact investment deals with funding for businesses, organizations and institutions that want to make a positive social or environmental change, while also assuring financial returns for investors.

Proposals on how to promote impact investment were submitted on Tuesday to minister of state for finance Jayant Sinha by an IIC delegation that included chairman Sandeep Farias, founding CEO Amit Bhatia and council members Rajiv Lall (founder managing director and chief executive officer of IDFC Bank), Roopa Kudva (managing director-Omidyar Network) and Ajay Kumar Kapur (deputy managing director Sidbi).

IIC is a member-based industry body, which believes that by 2020, annual investments in this sector can cross $1 billion in India and help around 100 million people.

IIC believes India is the perfect market and could soon take a lead in this nascent industry.

“India is turning out to be the hub of impact investment," Sinha concurred, citing recent IPOs (initial public offerings) of social enterprises like Narayana Hrudayalaya Ltd, Equitas Holdings Ltd and Ujjivan Financial Services Ltd. He also quoted the Global Impact Investing Network’s (GIIN) sixth annual survey released in May this year that suggested global investors are keen to put money into South Asia, especially India.

According to him, the reason India is becoming the preferred destination for impact investors is that the country is delivering results. He added that the government has already done a lot to promote social enterprises, giving the example of campaigns like Startup India launched in January 2016 and Stand Up India which was launched in August 2015. “We are now working on how to promote impact investment as a separate asset class because it is in government interest that this class flourishes," said Sinha.

He added that India is a nursery for innovation, and that the recommendations submitted by the IIC will be taken into consideration and discussed with other related ministries and agencies.

Kudva of Omidyar, part of the delegation that met Sinha, said India is an attractive destination for such investment—both domestic and international—because of the scale of population and problems.

“Social problems like illiteracy, poverty, unemployment, lack of access to water etc.—are all problems which have solutions. But in India, we have not yet been able to eradicate any one of these completely. That is largely because the solutions offered for such are either funded through philanthropy or government welfare schemes. It is a must that social solutions are businesses structured for profit because it is only then that you can reach the scale needed," she explained.

IIC believes that by bringing together all sources of capital and all social service providers (for-profit and non-profits), India can create a $1 trillion social economy by 2035 and $3 trillion by 2050. Among the recommendations submitted to the MoS, IIC has suggested the government create a regulatory environment for new, progressive instruments like social impact bonds, include social enterprises as a separate category in the Alternative Investment Funds Regulations, 2012 (AIF Regulations) and define social enterprises for priority sector lending.

Social Impact Bonds raise money from private investors for social enterprises and charities and, in turn, produce savings for the government and have measurable social benefits. These have been successful in the UK and the US.

However, adding a word of caution, Lall of IDFC Bank, also a member of the delegation, pointed out the returns on investment vary and may not always be as high as investments in purely for-profit enterprises because the idea of impact investment is to break out of the grant financing of social development and adopt models that give high measurable social impact. “And on the way to delivering that impact, you get returns," he explained.

Like Kudva and Sinha, Lall believes, “The scale of problems makes India ideal for impact investment because of the opportunity it offers. Scale implies that enterprises aimed at resolving social problems can become easily commercially viable and remunerative," said Lall.

While India has recorded GDP growth of over 7%, it continues to trail behind in human development indicators such as health, access to infrastructure, education or employment. That is why a model like impact investment would succeed in India, suggested IIC chair Sandeep Farias.

Farias is also founder and managing director of Elevar Equity, which provides funds for entrepreneurs who deliver innovative market-based solutions and deliver essential services to disconnected communities underserved by global networks. Farias acknowledged there are some sceptics on funding social enterprises with a for-profit approach, but added “if businesses can deliver quality and build on trust with all stakeholders, low income communities, who are most important stakeholders for this model, are more than willing to pay for services and products."

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