The promise of impact investing in India


Content from the Brookings Institution India Center is now archived. After seven years of an impactful partnership, as of September 11, 2020, Brookings India is now the Centre for Social and Economic Progress, an independent public policy institution based in India.


COVER Impact investing in INDIA

Achieving the ambitious sustainable development goals (SDGs) by 2030 will take an estimated $5 to $7 trillion per year, with a financing gap of $2.5 trillion in developing countries.In India alone, the outsize challenge has been translated into a financing gap of $565 billion. While the country has seen huge progress across the social sectors, enormous challenges remain. For example, only slightly over half of all children enrolled in standard 5 can read at least a standard 2 level text, while just 21% of mothers receive full antenatal care.

Closing this gap requires action on several fronts; efficient and effective domestic resource mobilisation, outcome-focused donor efforts to ensure that money is spent well and harnessing private capital for good. In recent years, interest has grown globally amongst governments and markets to develop new investment approaches, such as impact investing or purpose-driven finance. Impact investment refers to the provision of finance to organisations with explicit expectations of financial returns as well as measurable social outcomes.

According to a recent analysis by the Global Impact Investing Network (GIIN), over 1,300 organisations manage $502 billion in impact investing assets globally. The impact investing sector in India attracted over $5.2 billion between 2010 and 2016, with over $1.1 billion invested in 2016 alone.

With the emergence of impact investing as a new asset class in India, investors are not only providing capital and support to social enterprises but also growing to understand the potential of this new form of investing. Given the risks and complexities of serving the social finance sector, several innovations have emerged – not only the way capital is structured but also how impact is delivered. There has also been a rise in public-private partnerships, largely driven by government budgetary constraints, the new public management ethos and the fact that innovation is increasingly cooperative and network-based. Financing development through extra-budgetary means and public-private partnerships offer potential solutions, such as a focus on outcomes and improved performance management for service providers.

India has a thriving social enterprise ecosystem; many organisations, however, struggle to access the capital they need. In a survey of Indian social enterprises, 57% identified access to debt or equity as a barrier to growth and sustainability. And despite the developing ecosystem and potential of the impact investment space, the literature on impact investing in India is limited. The number of impact investors in India, the sectors and areas they choose to invest in and the future of instruments remain unclear. This report aims to provide an analysis of the state of the impact investing sector in India, with specific focus on the health, education and agriculture sectors, as well as examining how impact is measured. The report also investigates several instruments, including equity and debt investments as well as market-based, innovative solutions such as social and development impact bonds (SIBs and DIBs hereafter) and innovation or outcomes funds.


Within the broader spectrum of social investment models, approaches range from purely profit-driven investing without expectations of social impact to pure philanthropic grant-making by donors and foundations. Corporate social responsibility (CSR), socially responsible investing (SRI) and a focus on environment, social and corporate governance (ESG) have also gained traction in the last decade in India and abroad. Globally, some of these trends have been driven by government-led advances in bringing analysis and rigour into public spending and social outcomes.

Impact investing differs from corporate social responsibility, environmental, social and governance or socially-responsible investing as it goes a step further to include only those investments that have clearly defined intentionality for achieving “measurable” impact, alongside financial returns. Financial returns for impact investing range from simply preserving the principal amount to matching the principal amount to even exceeding mainstream market returns. Impact investors also focus on investing in social enterprises that do not just mitigate negative impacts but also generate net positive impacts. Positive impacts may be demonstrated in various ways – from creating jobs and employability to serving low-income consumers through housing, education, accessible healthcare or inclusive finance. What further distinguishes impact investing from traditional philanthropy has been the investment and return motives of impact investors where scalability, entrepreneur characteristics and experience weigh in. Despite the promise, cumulative assets under impact investing remain marginal compared to the billions of dollars invested under CSR, ESG or SRI. The field is new and evolving fast in India, with approximately 30 firms in the market, a subset of which is registered with the Impact Investors Council (IIC) in India. The impact investing market in India has mimicked the trends and challenges of the global impact investment industry. However, there are several peculiar aspects of the Indian market which make it interesting and critical to examine from a policy perspective.


Impact bonds refer to a specific form of outcome-based or payment-for-success contracting that often employs upfront impact investment capital. The impact bond model aims at improving development outcomes for specific groups or beneficiaries. Impact bonds in financial terms do not qualify as bonds, since unlike bonds, impact bonds tie financial returns to the achievement of outcomes. Impact bonds have several potential advantages: when investment is tied to outcomes, rather than activities, service providers gain greater flexibility to adapt and improve their programs; governments have the potential to transfer the financial risk of a program to the private sector by only paying for a program when pre-agreed outcomes are achieved. Such instruments may help promote a culture of data generation and use and performance management. Impact bonds in India remain at a nascent stage, with two contracted in education and one in healthcare.


Our methodology involves a primary survey of different stakeholders in the impact investing market in India. The survey instrument is available in Appendix 1 at the end of this document. Our sample includes a variety of stakeholders, including those involved in impact bonds in India and portfolio companies where impact investments were made. The survey captures the flow of current investments, average expected returns, sectors of investment as well as the future of innovative financing in India.

We designed a mixed survey that consisted of both multiple-choice and open-ended questions. We then compiled a list of entities involved in the impact investing and innovative financing space in India and contacted their representatives for interviews. Given the small size of the impact investment industry in India, our survey sample size remains small – 27 organisations. This is, however, the largest survey of the industry. Earlier surveys were limited in scale as they were confined to firms with membership to the IIC (approximately 12 firms in 2016). They were also limited in scope and did not capture detailed disaggregated industry characteristics. Our survey addresses a larger number of industry features, including innovative financing instruments and sector-level trends which highlight the complexity and future potential of the impact investing industry in India. Of the total number of firms that we surveyed, 17 identify themselves as impact investors, eight as impact bond players and two as social enterprises. The interviews capture a range of perspectives from a dynamic industry that is at a nascent stage. The early empirical trends, however, hold promise of a future with far-reaching influence on India’s development in sectors including health, education, agriculture and financial inclusion.

Our analysis also incorporates the data provided by the IIC. Collected in collaboration with a team from Duke University, the IIC data provides summary statistics of how members of the council measure impact, the size and nature of their relative investments and the average returns they earned. For a global perspective, we conducted an extensive literature review of global research on impact investing from developed and emerging markets.


Each chapter of this report provides stakeholders with takeaways and learnings from the survey and research around impact investing in India. With the first chapter, we outline a history of the Indian impact industry and initial results from the survey – these touch on average sizes of investments, types of investments, average returns across the industry and some sector-level analysis of returns. In the second chapter, we deep dive into key sectors of investment— primarily, health, education and agriculture and present trends and challenges investors face while operating in these markets. The third chapter presents information on innovative financing tools such as social and development impact bonds, the market in India and the future of these novel approaches. In the fourth chapter, we show trends on measurements of impact and provide guiding steps for the industry to define impact more transparently and robustly.

Through the course of our research, we find several trends, many that mimic the international market and many that remain unique to the Indian context. Our main findings show how the Indian impact investment story is continuously evolving and changing. Impact investments are shifting from financial access, microfinance and energy towards traditional philanthropic sectors such as health, education and agriculture. Average returns beat market returns, even in sectors which are traditionally social sectors with low returns. We see impact investors playing hybrid roles, somewhere between private equity (PE) investors and accelerator/incubator style mentors. And find a strong focus on tech-based investments to achieve scale and reach. We find impact to be defined loosely and a lack of cohesion on measures and indicators at a sectorial and investment level. And a need to build an evidence-backed knowledge base for innovative financing and impact bonds.

The last chapter of the report provides key policy recommendations to build a case for mainstreaming impact investment as a complement to government and philanthropic spending. We aim to contribute to the conversation around outcome-based approaches. We recommend impact investors move beyond “easy-finds” and push for innovations beyond tech-based solutions. And the acceptance of global best practices and the promotion of greater transparency in measurements, through coordination and facilitation by industry organisations, such as the Impact Investors Council and Quality Council of India (QCI). We recommend investments of time and energy on search processes and truly filling gaps in provision, by bringing innovations in products and solutions. We also recommend the investigation of outcomes contracting at scale through the creation of an Outcomes Fund at a government or quasi-government level. Ultimately, a robust Indian impact investment market will depend on accurately identifying and improving hindering factors and constructing a strong ecosystem that fits its needs.