Why is Impact Investing particularly relevant in India?

Riya Saxena
Asha Impact: Profit, Purpose and Policy
5 min readJun 29, 2018


By Riya Saxena, Associate Asha Impact

Exploring innovative business models across the country

What does impact investment mean to an emerging economy such as ours? Why is it important? Can it help solve a number of social challenges that affect the day to day functioning of millions of Indians? What are the different trends that affect the impact investment market in developed and developing countries?

These are some questions that intrigued me as a student of Development Economics at LSE. In the past year, working in the impact investment industry in India, I sought answers to these through my interactions with social enterprises, impact investors and development sector experts across the country.

Despite the increase in public budgetary investment in priority sectors such as health, education, skilling, agriculture and water-sanitation, millions of Indians still live in abysmal conditions. The focus of the government has traditionally been on achieving ‘inputs’ such as increasing the number of schools rather than improving outcomes such as learning levels of students that ultimately matter the most to all stakeholders. This has made it hard to assess the success of different programmes and policies and subsequently maximise the effectiveness of public spending.

Given the challenges with public expenditure and the limited scope of philanthropic capital to fulfil the needs of the country, market- based approaches backed by the Impact Investment industry have emerged in the last decade. Impact investors support social businesses that are explicitly focused on providing critical services to the poor while simultaneously maximising profits. This is in line with the growing global movement to mobilise at least USD 3.5 trillion worth of private capital in addition to public expenditure to achieve the UN SDGs by 2030. The double bottom line focused investors have the mandate to finance unproven early business models in difficult geographies and sectors.

The country’s half a billion low-income population serves as a conducive test ground to develop innovative businesses, which can operate at scale. The presence of a strong entrepreneurial spirit has further contributed to the high quantum of enterprises in the country. Moreover, India’s stable and well-developed capital market, along with the government’s eagerness to attract private capital for development, ensures investor confidence and enables the flow of private capital into the country.

What drives Impact Investing Funds to enter the funding of social sectors?

Major impact funds and partner organisations of the Impact Investors Council that are at the forefront of the Indian impact industry

I believe two key trends are driving impact funds to back investments in social enterprises.

Global movement towards ‘conscious capitalism’: While working with development sector organisations and impact investors in London, I realised the importance that was laid upon codifying ‘profit with purpose’ investing. There was a conscious effort towards defining mission-aligned investing practises that were centred around inclusive business models playing an instrumental role in sustainably alleviating poverty. Research has often highlighted that years of charity and subsidy dole outs to solve development challenges across Africa and Asia have created numerous inefficiencies and wastage of funds. Thus an emerging section of investors, ‘Impact Investors’ have taken upon the mandate to address these development challenges through the use of market-based principles, which would bring the required system efficiency in the development sector.

Capturing India’s untapped growing business market: Unlike developed markets, the Indian landscape is strikingly different. Here the vast untapped market opportunity presented by social sectors such as affordable housing, energy, education and financial services makes the industry particularly attractive for impact investors from a business lens. With in-depth knowledge of the customer base in underserved markets, it makes commercial sense for impact investors to provide capital for products and services, which are usually considered to be high risk by mainstream investors.

In fact, the impact investment sector in the country is emerging as a sub-section of the commercial VC industry and early exits in the sector show potential of market rate of return. Asha Impact’s recent exit from Varthana (an NBFC lending to affordable private schools) at a more than 5x return highlights that social impact and profit can go hand in hand.

Has private impact investing made a difference in government social schemes in the country?

While the impact investment industry is nascent and growing, it has started to influence and closely interact with public policies. There is a massive push by the government to support the entrepreneurial culture in the country and establish new kinds of Public-Private Partnerships which can accelerate achievement of socio-economic outcomes. For example, there is evidence of this interplay in two sectors:

Financial Inclusion: The rise of the USD 14.7 billion* micro-finance industry has significantly shaped the financial inclusion policies in India. Supported by impact investors in the early days, the MFI industry has now developed into a relatively mature market, transforming some entities into small finance banks. In the past few years, the industry has seen itself stabilise after the downfall witnessed during the 2010 Andhra Pradesh crisis. Many regulatory changes were made by the government to bring discipline in the market and protect the consumers from being caught in debt traps by over-leveraged MFIs.

It led to the establishment of NBFC MFIs — a special class of RBI regulated entities providing microfinance and Self Regulatory Organisation (SRO) status for MFIs. Also, Priority Sector Lending (PSL) norms have been strongly influenced by the rise of MFIs as the capital channelised under these guidelines has been used to support the vibrant micro-finance industry.

Affordable Energy: Providing access to reliable and affordable energy in India has been one of the key development challenge for the government. Until recent, Decentralised Renewable Energy Enterprises (DRE), commonly known as mini-grids had not gained attention in the national energy policy. This was primarily driven by the inability of DREs to prove their financial viability and impact at scale. However, over the past ten years, mini-grid entrepreneurs, backed by impact investors have been able to show business model resilience. They have addressed the government’s shortcoming in servicing last mile consumers with reliable electricity through efficient metering, billing and collection services.

In the last two years, there has been a significant shift in the policy landscape in India, with the UP government launching the country’s first policy dedicated to mini-grids and the central government promising to launch a national mini-grid policy soon. The Asha Impact Trust has also been working with leading energy sector experts to lay out a roadmap for the establishment of interconnection models between the mini-grid and the national grid to fulfil the unmet energy demand of millions of Indians living in darkness

Would love to hear your thoughts and comments. Please do share on riya@ashaimpact.org

*GLP(USD) 2016 http://www.convergences.org/wp-content/uploads/2017/09/BMF_2017_EN_FINAL-2.pdf