Trail-Blazing Social Finance Puts India On Irreversible Course For Development Revolution

Earlier this month, the British Asian Trust announced the creation of the world’s largest education development impact bond (DIB), following in the footsteps of the pioneering UBS Optimus Foundation Educate Girls bond that launched in 2015. Last year, this innovative financing tool was extended to maternal health with the creation of the world’s first healthcare DIB, aimed at reducing the number of maternal and newborn deaths in Rajasthan.           

With the potential to leverage private philanthropic capital to address some of the world's greatest challenges, DIBs are just one of many innovative impact funding instruments that take the burden off cash-strapped governments to fund solutions to the world’s social and environmental ills. Although OECD governments are spending more than $10 trillion on social causes and philanthropists across the world donate some $500 billion a year, the UN Sustainable Development Goals (SDGs) are still short of $2.5 trillion annually.

A new path is being carved through the unique juxtaposition of socially conscious private capital and entrepreneurship that leads to positive social outcomes. With the potential to disrupt traditional philanthropic and government-mandated corporate responsibility programmes, impact investment offers investors an opportunity to make investments with both financial and social returns. By its very nature, this model provides an effective way to measure impact: when the investor earns profit, a social development agenda exhibiting measurable social returns is born.

Given the Indian government’s neo-liberal stance on economic growth, resulting in a significant rise in GDP and living standards, impact investment is emerging as a natural candidate for private sector actors to align themselves with the development agenda. Impact investment offers corporates the ability and incentive to maximise shareholder returns without sacrificing social development.

After almost two decades, impact investment assets under management amount to more than $228 billion, $5 billion accumulated in India alone.  Taking into consideration the popularity of this two-pronged investment strategy, prominent asset managers — Bain Capital, BlackRock, Credit Suisse, Goldman Sachs, TPG, KKR, UBS, and, JPMorgan Chase, to name a few — have added social impact products to their portfolios. 

With its development challenges, India has become a fertile incubator for innovative social finance tools, which has much to do with our decision to stage the world’s biggest impact investment summit, GSG Impact 2018, in New Delhi this year. 

At this gathering of hundreds of delegates from around the world, we will be adding to the already burgeoning supply of social finance products with the launch of the India Impact Fund of Funds (IIFF) and India Education Outcomes Fund. The IIFF is a billion-dollar impact fund of funds for India that will help achieve UN SDGs and government national priorities through for funding enterprises primarily through intermediaries. The education fund will focus on improving the quality of education, particularly for poor and low-income students.

These financing tools and the building impact investment movement harbour the potential to bring a paradigm shift in India’s socio-economic development, with a foundation deeply laid in the scheme of social improvement and equality. Impact investment holds out the hope that Adam Smith’s invisible hand will always be inclusive.