By Alex Counts
Until just a few decades ago, most people believed that making money through business and investing on the one hand, and giving away money through donations to charity on the other, were distinct activities separated by walls that were both think and high. In other words, making money and giving it away required different operating modes, ways of thinking, and even vocabularies. To mix these efforts was to risk inefficiency or even hypocrisy. Public policies reinforced the separation.
Shaping the Nonprofit Landscape in the U.S.
For example, in the U.S. tax code, section 501c3, which defines the form that most nonprofits take, prohibits activities that may lead to “the [financial] benefit of any shareholder or individual.” India Giving Day, an initiative of the India Philanthropy Alliance that recently raised more than $5.5 million for 33 leading nonprofits working in India, fits squarely into the charitable realm, even though some of the organizations involved generate earned income through quasi-commercial activities.
The Evolution of Social Impact Investing
For many people, the walls between making money and improving society have been gradually coming down over the last 20 years, leading to some exciting hybrid or blended approaches. India and Indian Americans have been at the forefront of this new thinking. The origins can be traced to the Ford Foundation’s successful efforts to have the IRS recognize the validity of “Program Related Investments,” which were loans to nonprofits that operated in a commercial manner.
They sought and received permission to have their assets allocated to PRIs, as they became known, exempted from the total used to calculate their mandatory grant-making requirements each year. Over the years, many of Ford’s PRI loans went to Bangladesh and India.
The Rise of Impact Investing
Since that momentous development, what was originally called social investing, and which today is mostly known as impact investing, has blossomed. Unlike screened investments that use so-called ESG (environmental, social, and governance) criteria to avoid companies that may be doing harm to people or the planet, impact investments are in commercial entities that are trying to do good; in other words, they are attempting to generate both financial and social profit (also known as societal benefit).
Sustainable Business Models for Social Good
They seek to follow sustainable business models while ensuring that they lead to reductions in poverty, improvements in the educational status of vulnerable groups, increases in clean energy use or climate resilience, and other socially and environmentally beneficial outcomes. Many use cross subsidization techniques, where a product or service is sold profitably at full cost to those who can afford it, which generates enough surplus to offer that same product or service at deeply discounted prices to those of more limited means.
Indian Leaders in Impact Investing
India has been at the forefront of this movement, and Indian Americans have been increasingly involved. Take, for example, Vikram Gandhi, a former (and highly successful) international banker who now teaches at Harvard Business School. In 2015, he launched Asha Ventures, a leading impact investing platform. It now has a robust and growing portfolio of companies working in different ways to create a more inclusive and sustainable world.
Grameen Capital India and the Impact Investing Continuum
Or consider the example of Grameen Capital India, a for-profit niche investment bank founded in 2008 by the dynamic Indian social entrepreneur Royston Braganza that arranges debt and equity solutions for impact-oriented clients. GCI—which was originally conceptualized by members of the Indian diaspora and Indophiles such as Bob Eichfeld, the former head of Citibank-India—itself later spawned Grameen Impact India.
GII’s Impactful Contributions to Sustainable Development
GII has become an innovative impact fund that has pioneered an impact debt vehicle focused since its establishment in 2017 on enterprises advancing India’s progress in reaching its Sustainable Development Goals.
GII’s acclaimed “SDG Impact Bond Series” has provided affordable debt capital to commercial enterprises working towards financial inclusion, affordable education and healthcare, sustainable agriculture, and clean energy. Its COVID-19 SDG Impact Bond provided livelihood support to women artisans, and its SD Agriculture Bond increased farmers’ productivity and income while improving the agriculture value chain.
The Changing Landscape of Investing for Social Change
These and many other examples of investing to create social change and environmental sustainability have been marketed successfully to many Indian American business leaders. A growing number of them seek to blend their commercial savvy with their desire to improve society. This approach also avoids some of the regulatory hurdles that confront those seeking to bring charitable funds into India to benefit traditional nonprofits.
The growth and maturation of impact investing globally has spawned industry bodies that set standards and share best practices. Perhaps the best known is the Global Impact Investing Network (GIIN). In India, a hotbed of impact investing in recent times, the leading industry body is the India Impact Investors Council (IIC). Its conferences and publications about the sector are excellent and are helping to build a vibrant ecosystem that focuses investors on some of India’s critical opportunities and challenges.
Global Standards and Impact Investing Bodies
For example, it recently published “Green Investment Opportunities in India” to highlight the ways businesses and their investors can help in a clean energy transition and thereby address the climate crisis. It delves into opportunities in green hydrogen, battery energy storage systems, waste management & material circularity, and climate smart agriculture. Its India Impact Investing Handbook is essential reading for anyone seeking to get involved in this growing movement to build commercial investing with the charitable impulse.
The days of segregating investing and changing society for the better are behind us. The exciting era of impact investing is upon us. As it has in so many other areas, India is leading the way in this global trend. While some may continue to keep their profit- and impact-generating work separate, many more are seeing the advantages of blending them. At the India Philanthropy Alliance, we celebrate and promote all efforts to accelerate progress towards addressing India’s most critical human development and environmental challenges, which are also opportunities.
About the Author
By Alex Counts, Executive Director, India Philanthropy Alliance.
