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Impact investments are investments that are placed into organizations, businesses, and funds with the plan of generating both a social and environmental impact, along with a financial return. This type of investment can either be made in a developed or an emerging market. Either way, the impact investment market as a whole is currently a growing one. Depending on the circumstances, impact investments focus on a range of returns from below market to market rate and also provide capital to support solutions for some of the world’s most pressing challenges in certain sectors. These sectors include financial services, clean technology, accessible and affordable healthcare, affordable housing, and sustainable agriculture.
Characteristics of Impact Investing (1)
There are four major characteristics that play a vital role in impact investing: impact measurement, range of return expectations and asset classes, investment with return expectations, and intentionality.
Impact measurement establishes and states the environmental and social objectives to important stakeholders. It also monitors and manages the performance of investees, as well as reports on social and environmental performances that are relevant to stakeholders.
Impact investments can be made across asset classes such as fixed income, venture capital, private equity, and cash equivalents. Impact investors may earn fees, such as guarantees, through the provision of catalytic instruments. Depending on the asset class, returns typically range from below market rate to market rate.
The characteristic of investment with return expectations factors in the expectation that impact investments should bring at least a financial return on capital.
The intentionality aspect of impact investments comes into play with the intent of investors to generate social and/or environmental impacts through investments. This is a big part of impact investments. The investments are made into funds and enterprises, which work to expand access to financial services, healthcare, education, affordable housing, or quality employment by underserved populations.
An Example of Impact (2)
Milaap is one company that is involved in impact investing. Anyone who decides to invest in Milaap is considered an impact investor. Milaap is a fairly new social enterprise that was founded in 2010 in the microfinance industry and focuses on making it easy for people all over the world to lend money to India’s working poor. The lenders involved make sure that the borrowers involved have access to solar energy, clean water, sanitation facilities, some vocational training, as well as opportunities for small enterprise. The loans given out not only affect the borrower directly involved but also the borrower’s family and friends. Every dollar invested in improving access to the areas listed above yields twelve dollars in economic returns, compared to every one dollar invested in sanitation which yields nine dollars. Milaap has helped over 900 families with their loans, with over 4,500 people overall having benefited as well.
In conclusion, companies like Milaap prompt an increase in social capital. Impact investments have been beneficial to entire families and societies, while lifting people out of poverty.
References:1. "Global Impact Investing Network." Global Impact Investing Network. Global Impact Investing Network (GIIN), 2015. Web. 9 Apr. 2015. <http://www.thegiin.org/cgi-bin/iowa/home/index.html>. 2. Milaap. Milaap.org, 2015. Web. 9 Apr. 2015. <https://milaap.org/>.