With President Obama concluding a successful visit to Delhi, the Indo-US bilateral agenda is now poised to move ahead on nuclear and renewable energy, defence collaboration, trade and investment and several other important issues. However, we at Asha Impact, a social investing and public policy organisation, believe one major issue was not explicitly addressed, both in the official dialogue and the extensive media coverage. An issue that both countries can seize upon to effectively leverage the convergence between India's overriding objective of inclusive growth and the United States' strategic interest in seeing India succeed in its development path.
The issue is the set of institutional developments around what is characterised as social impact investing, or using market-based approaches to tackle the toughest social issues and achieve meaningful poverty alleviation. Social impact investments - defined as investments that intentionally target social objectives along with financial return and measure the achievement of both - have been picking up pace in India over the last decade. They involve equity and debt investments in for-profit businesses that provide basic services to low-income communities or which increase the incomes of people by engaging them in supply chains.
Impact investing is a global phenomenon. It has recently received policy attention at the highest levels in the G8 countries with the formation of the Social Impact Taskforce and the setting up of national advisory boards in several member countries including the United States. The work of the taskforce has focused attention on key issues such as metrics for impact measurement, asset allocation by institutional investors, corporate governance structures and, ultimately, on the application of social impact investment for international development.
India happens to be a global leader in this space, a hub of social entrepreneurship activity and a testing ground for innovations that can scale across the globe. India is a unique place to experiment with different, innovative business models - first, due to the variety and scale of the problems that the country faces, and second, because of its thriving entrepreneurial eco-system and talented social entrepreneurs willing to build businesses that help address those problems. Indeed, the last decade has seen impact investing expanding from the microfinance and financial inclusion space to many other sectors like access to renewable energy, affordable healthcare and education, water and sanitation, low-cost housing, agriculture and non-agri livelihoods and vocational training.
Several US-based philanthropists, notably Bill Gates, Pierre Omidyar and Michael Dell, have set up foundations that are active in making social investments in such enterprises, in addition to substantial capital from development finance institutions like the International Finance Corporation (IFC) to both private equity funds and direct investments in social enterprises. More recently, several successful business and entrepreneurial leaders in India have started to make a contribution to the field, setting up foundations and making angel investments in a range of social enterprises. Overall, India is at the forefront of the impact investing revolution.
How, then, can the United States and India leverage the power of social impact investing to harness entrepreneurship, innovation and capital to solve the toughest problems facing our society? Below is a five point agenda for the governments to consider:
Make impact investing a priority
The first step is to recognise the importance of the phenomenon, create awareness and establish impact investing as a priority area for Indo-US collaboration by creating a dedicated mechanism for policy coordination and engagement with market stakeholders. Social enterprises span across sectors, and bureaucracies and governments can play a key role in breaking down silos to allow coordinated action between investors, entrepreneurs and policymakers. Articulating social investing as a priority area also allows the government to develop capacity for action and mobilise required resources by either consolidating existing government activities or developing new departments. The Modi government has already shown impressive capacity to do this, with schemes like the Jan Dhan Yojana, Swachh Bharat, Make in India, Digital India and most recently with the re-configured Niti Aayog.
Perhaps the biggest contribution the governments can make is to provide funding or catalyse private capital towards social investing. The announcement of $1 billion worth of lending support to small and medium enterprises in India through the Overseas Private Investment Corporation (OPIC) is great example of such initiatives. Or the Rs 10,000 crore corpus the Finance Minister has set aside for funding the venture capital industry in India. But more can be done by creating new channels for social investment, providing subsidies for targeted capital flows or removing regulatory barriers to expanding access to capital for social enterprises. There are a range of potential opportunities that the two governments should consider, from a joint Indo-US inclusion fund along the lines of the proposed India Inclusive Innovation Fund, to learning from the experience of the US and UK with Social Impact Bonds, where private investment is mobilised for social sector programmes like healthcare delivery with government repayment to the investors only in the case of successful development outcomes.
Tweaking existing regulations in India can help unlock significant private capital. From SEBI's definition of social investment funds to modifying priority sector lending guidelines or making it easier for social businesses to access low-cost debt, there are a host of tools at the government's disposal. Corporate social responsibility guidelines also can be modified to allow the flow of funds from corporate India to for-profit social impact initiatives.
Improve the climate
The government can facilitate ecosystem development such as incubation for social enterprises and create a positive climate for social entrepreneurship. There are various market intermediaries providing critical linkages to the sector, including industry associations such as the National Association of Social Enterprises (NASE) and the Impact Investors Council (IIC) with whom the government can engage to coordinate policy reforms and develop the ecosystem.
Harness the power of the diaspora
In any discussion of Indo-US relations it is always useful to recall the importance of the Indian American diaspora, both in terms of its influence on policymakers and its interest in contributing to India. Indeed, one of the major announcements during President Obama's visit was the Indian diaspora investment initiative. This aims to mobilise social investment from the Indian diaspora through community investment notes and offers loan guarantees to specialised financial institutions in India that lend to small and growing social enterprises.
The time has come for official Indo-US collaboration in social impact investing. Just like India and America are natural allies based on our democratic and open societies and robust economic links, so too there is a natural synergy between the work of impact investors in the US and social enterprises in India. By exploiting this synergy, President Obama and Prime Minister Modi can help achieve their common vision of Indo-US collaboration to achieve inclusive growth and social progress.