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January 24, 2019

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Impact Investing in India

For the last one and a half year, India has seen an increase in mobile phone penetration and data. According to Roopa Kudva from Omidyar Network, a philanthropic investment firms, the reduction in data costs is the reason behind the increase in the phone and data coverage. Kudva states that the growth in data access has brought more job opportunities, increase education and access to information. It also helps drive India’s social impact business and impact investing, according to Kudva.

 

Impact investing in India is a fast-growing market. Adva Saldinger of Devex, a media platform for global development, cited McKinsey report (2017) which reveals that the total value of impact investments in India amounted to $5.2 billion since 2010. The average deal size has also increased from $7.6 million in 2010 to $17.6 million in 2016. McKinsey predicted that impact investment in India could potentially grow by 20-25%, adding up to around $6-8 billion by 2025.

 

What is driving impact investing in India?

Kudva claims that there are three key factors which drives the growth in impact investment in India - the increase in awareness of impact investing, the fact that philanthropists are starting to become more focused on global issues and a growth in the entrepreneur ecosystem.

 

For example, Kudva mentions that in 2014, India made a mandatory law where companies of a certain size must spend at least 2% of their net profit on CSR. This law encourages philanthropists to start viewing impact investment as a complement to philanthropy.

 

Saldinger also wrote that there had been a recent shift in the perceptions of Indian nationals. People are becoming more interested in solving the country’s problems such as environmental concerns. The changes in attitude is credited for the increasing interest in the field of impact investing.  

 

The Challenges: 

Saldinger states that impact investments in India tends to focus on specific sectors such as financial services and technology. Businesses that sit outside these sectors receive little attention and find it difficult to attract investment. For example, according to Parvesh Sharma, the co-founder of Kamatan Farm Tech India, agriculture sectors which have more than 130 million farmers are having a hard time raising funds. The result of impact investments in India may be less desirable if one sector benefits and the other are left behind.

 

To attract new investors, India will have to produce more track records of past investments in this field. People will need to be convinced by the data that their investments can make a difference. Currently, in India, the track record is being built by local investors such as LeapFrog Investments. However, to increase investors’ confidence, more of these companies are needed.

 

Another obstacle to impact investing in India is the lack of collaboration between non-profit organisations and for-profit companies. According to Goel of Dell Foundation, a platform where government, nonprofit and for-profit actors can come together and collaborate is necessary for impact investments in India to grow.

 

There are opportunities and potential to grow for impact investing; however, it is likely to take some time before impact investing become mainstream in India.

 

By: Konlawat Jarrunpattana (Mooky)

konlawatj@gmail.com

 

 

Further information

 

McKinsey report on the status of impact investment in India

https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/impact-investing-finds-its-place-in-india

 

Adva Saldinger article on India impact investing industry

https://www.devex.com/news/india-has-a-growing-impact-investing-industry-but-can-it-scale-94000

 

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