The recent McKinsey & Company report ‘Impact Investing Finds its Place in India’ is an interesting read with some valid insights on impact investing in India. However, having been in the impact investing space in India for more than a decade, I have witnessed the pendulum of impact investing swinging away from India towards other high-potential countries of South and South East Asia and believe it is time to zoom into the new frontier markets which have proven strong economic growth with high impact potential.
I began my impact investing journey in India in 2006 – there were just a handful of impact funds at that time, but the infrastructure for impact investing had been set in place. Foreign donor money along with large amounts of Development Financial Institution (DFI) backing not only enabled impact funds to raise capital but also helped create a strong impact eco-system. Almost all of the funding for impact funds has been and continues to be from overseas institutions, including several Foundations, DFIs.
During this time, I had the privilege of leading many interesting, impactful investments across sectors and have witnessed the space mature. Fast forward to today, I feel impact investing in India has reached a point of saturation. There are multiple impact funds now chasing few scaled opportunities in India and, as the report itself correctly captures, the bulk of the successful exits have been from just one key sector: Financial Inclusion (primarily, microfinance). Further, many of the impact enterprises that scaled significantly were set up or supported by diaspora returning to India with innovative ideas and embracing the concept of impact.
The tide has shifted and attractive opportunities of impact investing have moved from India to the new frontier countries such as Bangladesh, Myanmar and Indonesia. Let’s go deeper with Bangladesh. It has been consistently demonstrating formidable economic progress (currently growing at over 7%), has a large underserved population base that is aspiring to earn and save more and has very high levels of women participation in its labor force (45%, compared to just over 20% in India). All these factors, combined with a large number of SMEs (25% of the GDP), make the case for a very compelling growth story backed by tremendous impact potential. We are witnessing a phase in Bangladesh that was seen in India about 10 years back – diaspora returning to launch innovative business models, the emergence of new conventional funds, many investment friendly policy initiatives being undertaken and many private sector enterprises scaling sustainably. Yet, there is solely one dedicated impact fund focused on Bangladesh today. Detecting this gap, companies like IIX are boldly setting out to change this statistic.
This brings me to my current role at IIX, being part of the IIX Growth Fund (IGF) –an equity fund primarily focused on Bangladesh but also investing in innovative, high-impact enterprises across Myanmar and Indonesia. At IGF, we see an attractive pipeline of opportunities from these countries, many high-impact enterprises, some of which are supported by IIX’s proprietary equity crowd funding platform, in sectors such as clean energy access, sustainable agriculture and affordable healthcare. As someone passionate about impact investing and promoting growth in underserved markets, I can confidently say that I am where the action is shaping up and where there is much untapped potential. While India has taken center stage in the impact investing space in past years, now is the time to make room for other Asian nations on the stage. And this has already been validated – as Goldman Sachs identified, countries such as Bangladesh and Indonesia are among the “Next Eleven” group of economies that have BRIC-like potential in rivaling G7 nations!
Investment Director, IIX Growth Fund
Image: IFPRI -IMAGES, flickr