India drives impact investment market forward
Impact investments in India have grown at an exponential rate over the past decade, it has been revealed.
Between 2010 and 2016, these funds totalled more than USD5.2 billion as the market attracted over 50 active impact funds, according to new research by McKinsey, and it's predicted that the market could grow to $8 billion a year by 2025.
The new study has also uncovered that the average deal size has more than doubled from USD7.6 million in 2010 to USD17.6 million in 2016.
The most attractive sectors for investment continue to be financial inclusion and clean energy projects, accounting for 43 per cent and 21 per cent of investments last year respectively.
There has also been an increased trend for 'club deals' in India where mainstream private equity and venture capital firms invest in partnership with impact investors. Revenue from such deals almost doubled between 2010 and 2016, and are predicted to see another significant boost by 2025.
Vivek Pandit, Senior Partner and global co-leader of McKinsey’s private equity practice, commented on the findings: “Investors around the world are seeking opportunities in socially responsible and purpose-driven projects. India is an attractive market with a large population and several social measures under stress, a government motivated to bridge social gaps and supportive of policy changes, and underlying economic growth and stable financial markets. Global investors can learn a from India’s experience as impact investing scales and comes of age in the country.”
Impact investments on this scale in India have demonstrated an ability to employ capital sustainably while also meeting the financial expectations for investors, and from a social perspective, the effectiveness of such investments have been felt by many.
Toshan Tamhane, a Senior Partner at McKinsey, says: “Having grown by a mean annual growth rate of 14 per cent over the last six years and now touching the lives of up to 80 million people, India has proved to be a real success story for impact investing, even as it continues to grow.”
Tamhane encourages increased collaboration with outside organisations to further expand the reach of impact investing in the country and around the world. In addition, he recommends that the industry could work with the government to leverage CSR funds for approved uses in the impact investment ecosystem. Currently, India ranks 93rd among 135 nations on the Social Progress Index, highlighting the huge funding gap that threatens to slow down the development of social infrastructure, but it's hoped that this gap will close as attitudes and awareness of impact investing changes.
Overall, the global market for impact investing is expected to grow to $300 billion or more by 2020. Its potential to act as a vehicle to fund, catalyse, and scale approaches that improve millions of lives make it an exciting and necessary addition to any investor portfolio.