Nidhi Hegde Senior Consultant Monitor Inclusive Markets Mumbai.
There has been increasing excitement in recent years around the potential of market-based solutions to the problems of global poverty, spurred by the growth of microfinance. This has elicited a rush to the new field of ‘impact investing’ with nearly 200 funds set up in just a few years and billions of dollars of capital waiting to be invested, according to a recent survey by J.P. Morgan and the Global Impact Investing Network.
However, the reality on the ground has not kept up with the hype. Many investors report that they are struggling to find good opportunities with impact, and when they do, they find that the returns are modest at best. Meanwhile, philanthropic and aid funders are wondering how they should engage with inclusive business solutions, if at all—perhaps it is time to stop the grant subsidies and let market forces drive this forward.
It is against this backdrop that we published our report ‘From Blueprint to Scale: The Case for Philanthropy in Impact Investing’ in collaboration with Acumen Fund in April. The report paints a clear picture: impact capital alone will not unlock the potential of impact investing for the global poor. Because of the extreme challenges facing those who are pioneering new models for inclusive business, truly realizing the impact in impact investing will require more, not less, philanthropy, and will need that philanthropic support to be delivered in new ways.
While affirming the tremendous impact potential of inclusive business and impact investing, the report is a call for funders and donors to engage in the emerging practice of ‘enterprise philanthropy’ —developing and establishing the new inclusive business models and markets into which capital can then be deployed to drive impact at scale.
Since April, we have been engaging in discussions with funders, investors and thought leaders, from Berlin to Palo Alto, on what we can all do to move forward. It is clear that there is tremendous enthusiasm to do more to build a strong pipeline of new inclusive business models and markets to benefit the poor.
There is also a clear recognition of the challenges ahead of us. Enterprise philanthropy will require new capabilities to deploy targeted funding and capacity-building support, and this will need to be projected into markets far from where many funders are based. More fundamentally, it calls on funders to build business models which may generate future returns for investors—this may be at odds with prevailing attitudes. How will philanthropic and investment money co-exist within firms? What guiderails are needed to give enterprise philanthropists confidence that social impact will be safeguarded as successful firms tap commercial capital in order to scale?
There are no easy answers here, but a growing number of foundations and aid donors are rising to the challenge, and working through these thorny issues as they go. It is our hope that many more will join them. We also hope that funders and investors will take more opportunities to work together across the capital spectrum, and, importantly, that we will all have the courage and honesty to share and learn from all of our successes and failures.
Harvey Koh is an Associate Partner at Monitor Group in Mumbai, and is a leader in the Monitor Inclusive Markets unit.
Nidhi Hegde is a senior consultant in the Monitor Inclusive Markets unit also based in Mumbai.
‘From Blueprint to Scale’ and related Monitor publications can be downloaded for free from the Monitor Inclusive Markets website.