Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
the Poor, Collins et al show that poor households successfully build lump sums and
spend them on life events (weddings/funerals), emergencies and opportunities
(including investments in land and buildings) 42 .
Mobile phone technology is one example of this type of purchase. Originally
discounted by skeptics as unnecessary for a population struggling to meet its basic
needs, it has proven one of the fastest growing businesses in BoP markets, as farmers
access pricing information to make the most out of their crops or parents access
mobile banking services to save money for education. With the significant success of
Celtel in Africa, many in the business world were forced to acknowledge BoP clients
as consumers with choice managing their money to purchase products or services and
consequently improving their lives.
Government or philanthropic solutions can do only so much
In areas where on-grid electricity and clean water are available from government-run
utilities and quality education is available in a government-run public school, the
demand for impact investment in these sectors may be limited. But many BoP
communities lack access to government services and often pay a “BoP penalty” 43 to
procure basic services from subscale and inefficient private sector providers. Impact
investors can reduce this penalty by harnessing more efficient, competitive business
models to deliver better, cheaper and more widely-available services to poor
communities.
Beyond the opportunity to intervene where government has been unable to deliver
products or services, even well-functioning governments and well-resourced
philanthropies will always be limited by resources and scope. Impact investment can
complement government and philanthropy by providing services to poor
communities, thereby allowing government and philanthropy to concentrate their
limited resources on reaching the poorest of the poor who cannot participate in
market-based solutions.
Simple solutions can have large-scale and profitable impact
While there are obstacles to scale traditional business models into the BoP sector,
there are many examples of simple solutions that address the BoP-specific consumer
behavior and infrastructure challenges. For one, Aravind Eye Care, which delivers
free eye care (including surgery) to poor people by cross-subsidizing from paid
services, has treated over 2.5 million patients and performed over 300,000 surgeries
between April 2009 and March 2010. Through its fee income and despite the fact
that a majority of patients does not pay for services, Aravind is financially selfsupporting
44 while successfully providing access to high quality services that would
otherwise be unaffordable for many of those patients. While Aravind is structured as
a non-profit, impact investors could support its growth, as well as similar models,
through debt investments.
Reduce BoP penalties while delivering profits to investors
With the right solution, businesses can deliver affordable solutions to BoP clients
while delivering profits to investors. Not only is this the case where products or
services are absent, but this can also occur where competing services are being
42 Portfolios of the Poor, Chapter 4, D Collins et al, Princeton University Press, 2009.
43 See glossary for more detail.
44 The Fortune at the Bottom of the Pyramid, C.K. Prahalad, 2010.
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