Saturday, March 31, 2012

Impact Investing in India

I am a member of the Mumbai Angels network , and I attended an interesting session on impact investing which Sasha Mirchandani organized . This gave me the chance to meet Charly Kleissner, who has pioneered the concept all across the world, through his Toniic Foundation.
Indian culture has always placed a lot of stress on the importance of giving and sharing – it’s an integral part of our dharma and our karma . In fact, all religions promote this – for example, Christians believe in tithing. The trouble is that this giving has often been disorganized and haphazard. Lots of us donate money to help a good cause , but how do you make sure that the money you give has a significant impact , and is not just being wasted on holding conferences for wealthy donors in 5 star hotels ?

Initially, socially responsible investing involved simple negative screening – you would decide not to invest in companies which made weapons or sold cigarettes, for example . That’s what the green investment movement was originally about , where you would reject certain companies because it made you feel morally superior. Gradually, we have realized that there is a lot more which we can do – we can consciously choose to create and invest in companies which have a significant positive impact on the world, rather than simply reject those who have a negative impact.

Impact investing is likely to become increasingly important , because it caters to a basic need in all of us, which makes us want to accomplish something good and worthwhile, which we can leave behind as our legacy, after we are dead and gone.. Many successful people have a lot of money , but don't have the time or the ability or the energy to put it to good use . Some of us feel guilty about the fact we have so much, while others have so little . Others are ashamed that they have earned their wealth through underhand dodgy means, and want to cleanse their sins. Helping others is a constructive way of doing this, which is why so many wealthy individuals are happy to give their money to someone else who can do good to others by using their money.

The major value of being an impact investor is that you are not just handing over your money to the social entrepreneur , so that he can spend it as he fits. You are monitoring its use, to make sure it’s being put to the best possible use. Even more importantly, you can actually help to amplify its impact, by mentoring these social entrepreneurs. The impact investor can use his managerial skills or his network of friends and other high networth individuals to open doors for the entrepreneur , so that he can achieve more in a much shorter time than he would be able to do on his own.

Impact investing gives the donor a “feel–good” glow – and as Maslow pointed out , after addressing our basic needs, it’s important for human to cater to our emotional needs to feel fulfilled. This is something impact investing does well, because not only does it give you a chance to go good and feel good, it also allows you to make some money while doing so !

All of us try to good in our own small ways. The promise of impact investing is that it allows us to intitutionalise this, so we can scale it up, and do good on a much bigger playing field and reach out to many more people. We have seen some of the harm which unbridled greed can cause. Fortunately, capitalism has a compassionate side as well , and impact investing amplifies this. Just as countries are realizing that it’s not enough to just measure GDP – they need to be optimizing better measures, such as Gross National Happiness, investors are also realizing that it’ not enough to just maximize financial returns – we need to maximize social and environmental impact as well !

How do we measure impact ? It’s easy to measure financial returns, but how does one measure social impact ? The good news is that there are many clever tools to do so, and IRIS is a very useful metric which can be used for tracking how productive these investments have been.

Many investors feel impact investing is a distraction. They believe that their core competence is to earn a lot of money by investing in companies which provide the best ROI, and they should stick to basics, and not get diverted by irrelevant nonfinancial measures, as this may affect their performance. They feel it makes much more sense to donate the money they make through conventional investing to NGOs and other social entrepreneurs, ( with no strings attached) who can then put it to good use. In their opinion, this kind of division of labour ( where people who are good at making money make lots of it; and then give it to people who are good at doing good !) is more cost effective and efficient. This is the model which Rakesh Jhunjhunwalla ( India’s most successful investor) follows, when he supports the activities of Agastya, an outstanding educational project which is run by one of India’s leading social entrepreneurs, Ramji Raghavan. The marriage of Rakesh’s financial wizardry and Ramji’s social entrepreneurship creates a winning combination which provides the biggest bang for the buck !

Is impact investing all an eye-wash ? Are we just using it to paper over the fact that the divide between the haves and have-nots has progressively increased with time ? Is impact investing just a way of salving the conscience of the rich ? Is it a new fad because philanthropy has now become the new buzzword for socialites? Is it just another gimmick like CSR ( corporate social responsibility) , which companies need to show they do, because it makes them appear to be socially responsible and enlightened ?

I hope not ! Impact investing is a great opportunity to create win-win opportunities for the new generation of Indians, who now have the chance not only to create wealth , but also the ability to put it to the best possible use, rather than just mindlessly obsess over the market’s short term focus on growing quarterly profits .

Do we have the maturity to do so ? Is any of this relevant to India ? I think the time is right ! Many wealthy Indians have money which they have created themselves, and not just inherited. They are more willing to spend this on what they feel is right , because it’s their own personal wealth - not family money, over which other family members have a right as well ! I think we have now reached a tipping point , and organizations like DASRA are pioneering impact investing in India.

India has many socially responsible organizations such as Caring Friends, which are not as high profile as DASRA , but are often more effective, because they are leaner and meaner. Hopefully, they will learn from DASRA’s success and be able to grow as well.

Thanks to the internet, technology can now be used cleverly to match investors with social entrepreneurs, so we can start a movement which will create a positive virtuous cycle which will allow us to live in a better world.




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