India And Impact Investing

At varying points in our lives we would have come across names of the top 10 Philanthropic organisations across the world, with instances of getting overwhelmed by the scale of activity being spoken about.

Let me provide an alternate theory. Let us begin with taking a combined value of these top 10 organisations which works out to roughly US$ 182 Billion (off which 23% is accounted for by the Bill & Melinda Gates Foundation). Let me take the liberty of including a few more variables into this – 4 Billion people reported living below poverty line and a daily wage rate of US$ 2 per person and we arrive at a grand number of 23, which happens to be the number of days it would take for the top 10 wealthiest charitable organisations to run dry purely by the process of charitable contributions. Well is this the best way forward?

As quoted by Muhammad Yunus, “A charity dollar has only one life; a social business dollar can be invested over and over again." There exists an alternative to charity, one that involves taking an idea, providing an initial investment and channelling it into an economic activity. This channel of activity is known today by many names - Profits with Purpose, Putting money to work and the most commonly used terminology Impact Investments.

Over the past decade, a realisation has emerged that the profit and purpose can in essence coexists without compromising one for the other. This realisation has developed into a model which has been able to create a market for itself purely by combining the two elements, thereby generating greater impact and profits than they would have by keeping them in silos as in the past.

Currently in India, Impact Investments have come into being with Impact Funds and even Venture Capital playing the bit part role of funding Social Enterprises as long as it makes business sense to do so. One avenue exists which has gained international prominence but screams desperation for need of inroads in India. What more, this also has the potential to catalyse disruptive innovation in social arena.

Up until recently, tasks like improving infant mortality rates, providing clean drinking water and raising graduation rates were considered the purview of the Government with charities, non-profit organizations, etc. playing the supporting role. With the Indian population stated to touch a quarter shy of the 2 Billion mark by 2050, there is ought to be a massive strain in resources and implementation to maintain basic necessities if left to the government alone.

A new measure to channel mainstream capital that evolved in the UK has had people talking about its implementation in India. SOCIAL IMPACT BONDS (SIB). This is turning out to be a way to ensure that our Tax funded initiatives are not lost in transition, rather only fund initiatives that have already attained a level of success defined by a mutually agreed upon contract. If a program funded by SIBs achieves successful outcomes, the Government repays investors their principal plus a rate of return based on the program’s success. On the other hand, if outcomes are not achieved, the Government is not obligated to repay investors.

SIB evolved in the UK as an outcome of none other than the Financial Crisis of 2008 which had led to a depression in available funds for public utilities.

In India, we too have witnessed public funding come through a process of rationalisation, with public spending seeing a cut of 15% on Health and 16% on Education in the last Union Budget. This will bring about a greater emphasis on how these funds will be spent. For example, the government have led initiatives in Education with the Mid-Day Meal Schemes and Sarva Siksha Abhiyaan, which was enlisted to help improve the enrolment in school, which it did achieve. But the dropout rates were higher than previously recorded.

Which brings us to the ever increasing need to adopt a system of SIB in a country like India, where every social issue is backed by a large potential beneficiary base, purely due to its sheer population. But for something like SIBs to evolve in India there multiple systems that need to come into cohesion

• Private Investors – Individuals, Foundations or Investment Firms
• Government – A co-signer to the outcome based contract
• Service Providers – NGOs or other groups working to deliver these outputs and outcomes
• Independent Evaluator – To assess the outcomes of the program

The missing link is an intermediary, financial or consultant, who can get such interested parties to work together, drive the idea towards an acceptable structured design, and see the project through to completion.

Although there are glimpses of SIB being evolved such as one adopted by an NGO, Educate Girls, more needs to be done to make this a mainstream financial offering.

I for one am a fan of a model where government, social benefit organisation / NGOs, Corporates / Philanthropic Organisations / Foundations & Social Sector Consultants each maintain their respective areas of competence while contributing to a dedicated and defined purpose.

Siddharth Bharadwaj, Analyst Sustainability & Social Investment, Sustainable Square - has extensive experience in the Financial Sector and has experience in developing capacity within the Social Sector. Having worked closely with NGOs and Corporates, he currently is involved with providing Impact Assessment for Corporate CSR and Foundation Programs as well as endorsing socially responsible corporates through collaborations and channel partnerships.