The Promise of Impact Investing in India Jul 2019
The Promise of Impact Investing in India Jul 2019
The Promise of Impact Investing in India Jul 2019
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The Brookings Institution India Center serves as a platform for cutting-edge, independent, policy-relevant
research and analysis on the opportunities and challenges facing India and the world. The Center is based in
New Delhi, and registered as a company limited by shares and not for profit, under Section 25 of the Companies
Act, 1956. Established in 2013, the Center is the third and newest overseas center of the Washington, D.C.-
based Brookings Institution. Our work is centered on the Brookings motto of “Quality, Independence, Impact.”
All content reflects the individual views of the author(s). Brookings India does not hold an institutional view on
any subject.
Brookings Institution India Center
No. 6, Second Floor, Dr. Jose P Rizal Marg,
Chanakyapuri, New Delhi - 110021
www.brookings.in
ACRONYMS:
SDGs Sustainable Development Goals
GIIN Global Impact Investing Network
CSR Corporate Social Responsibility
ESG Environmental, Social and Governance
SRI Socially-Responsible Investing
IIC Impact Investors Council
SIB Social Impact Bonds
DIB Development Impact Bonds
QCI Quality Council of India
GDP Gross Domestic Product
MFI Microfinance instititions
PE Private Equity
VC Venture Capital
PbR Payment by Results
RBA Results-based Aid
RBF Results-based Financing
SIINC Social Impact Incentives
SSN Social Success Note
RCT Randomised Controlled Trial
DFID Department for International Development
MOSPI Ministry of Statistics & Program Implementation
ASER Annual Status of Education Report
GIIRS Global Impact Investing Rating System
PRISM Probability Risk and Impact System
SROI Social Return on Investment
CBA Cost-Benefit Analysis
PRI Principles for Responsible Investment
DLHS District-level Health Survey
NFHS National Family Health Survey
HMIS Health Management Information Systems
CGHS Central Government Health Insurance
CHMI Center for Health Market Innovations
NAS National Achievement Survey
TIMSS Trends in International Mathematics and Science Study
IEA International Association for the Evaluation of Educational Achievement
DISE District Information System for Education
SEQI School Education Quality Index
IRIS Impact Reporting and Investing Standards
FAST Finance Alliance for Sustainable Trade
SIAMT Shared Impact Assessment and Measurement Toolbox
ACKNOWLEDGMENTS:
The authors would like to thank many people for their contributions to this study. We thank two
blind reviewers for their extensive comments and suggestions on the original draft. In addition,
we would like to thank the Impact Investors Council (IIC) who supported and provided data
for this study. We would also like to acknowledge those who participated in our survey whose
valuable insights have formed the core of this report. Furthermore, we are particularly grateful
for the contributions of the following individuals: Kartik Desai, Geeta Goel, Jinesh Shah, Riya
Saxena, Aparna Dua, Ranjna Khanna, Neha Bhatnagar. We would also like to thank Zehra Kazmi
and Rohan Laik for editing this report and Aditi Sundan and Mukesh Rawat for their work on
designing the report.
The conclusions and recommendations of any Brookings India publication are solely those of its
author(s), and do not reflect the views of the Institution, its management, or its other scholars.
Brookings India does not hold an institutional view on any subject.
TABLE OF
CONTENTS
EXECUTIVE SUMMARY
PAGE NO. 8
INTRODUCTION
• Impact investing
• Impact bonds
• Research methodology & motivation
• Main findings and policy recommendations
PAGE NO. 9-12
CHAPTER 1
IMPACT INVESTING IN INDIA
• 1.1 Defining impact investing
• 1.2 The Indian impact investing market
• 1.3 Trends in impact investing in India
PAGE NO. 13-21
CHAPTER 2
SECTORS OF IMPACT INVESTMENT ACTIVITY
• 2.1 Health
Trends in impact investing in the health sector
• 2.2 Education
Trends in impact investing in the education sector
• 2.3 Agriculture
Trends in impact investing in the agriculture sector
PAGE NO. 22-27
CHAPTER 3
A NEW MECHANISM FOR IMPACT INVESTING: BLENDED INSTRUMENTS &
IMPACT BONDS
• 3.1 Blended instruments
• 3.2 How impact bonds work
• 3.3 Basic criteria
• 3.4 Global landscape
• 3.5 Potential and limitations
• 3.6 Impact bonds in India
• 3.7 Barriers & challenges of impact bonds in India
• 3.9 Innovation & outcomes funds
PAGE NO. 28-37
CHAPTER 4
METRICS AND MEASUREMENT
• 4.1 Results from The Brookings Survey: Impact measurement & indicators
• 4.2 Trends in impact measurement In India
• 4.3 Modelling potential impact
• 4.4 What to measure?
• 4.5 Existing impact measurement infrastructures
PAGE NO. 38-45
CHAPTER 5
POLICY RECOMMENDATIONS & CONCLUSION
• 5.1 Recommendations for impact investing in India
• 5.2 R
ecommendations for impact bonds & outcomes funds in India
• 5.3 Conclusion
PAGE NO. 46-53
BIBLIOGRAPHY
PAGE NO. 54-56
APPENDIX
PAGE NO. 57-69
EXECUTIVE SUMMARY
G
overnments around the world are starting to recognise the need for a new approach to
social service delivery. One that places emphasis on identifying innovative ideas, testing
their effectiveness and scaling up programs that prove successful. The main hurdles to
this new approach are a lack of up-front funding, inability to sustain focus on performance
and a reluctance to take on the risk of failure. The impact investment ecosystem is
designed to overcome these challenges. With an active social enterprise space and an engaged
investment market, impact investing takes advantage of private sector efficiency and capital to
achieve public sector goals. With this report, we aim to provide an analysis of the impact investment
sector in India and its potential to achieve social good. The study brings together wide-ranging
analyses undertaken between February 2018 and April 2019. Structured around four key tenets of
impact investment market activity — market trends in India, sector-level analysis, innovative financing
and measurements— it takes the reader through the major trends that have shaped the Indian impact
investment environment and offers specific recommendations. A special focus is placed on the key
social themes of health, education and agriculture. The methodological approach put forth by the
study will help identify the essential tenets for the development of this ecosystem, and layout clear,
actionable recommendations for implementation by major stakeholders. Through undertaking an in-
depth desk and literature review and a primary survey, the report aims to equip key stakeholders with
the core conditions for decision-making across different facets of impact investment market activity.
Armed with these learnings, readers will be poised to play a major part in the creation of a social
financing ecosystem in India.
A
chieving the ambitious sustainable only providing capital and support to social
development goals (SDGs) by 2030 enterprises but also growing to understand the
will take an estimated $5 to $7 trillion potential of this new form of investing. Given
per year, with a financing gap of $2.5 the risks and complexities of serving the social
trillion in developing countries.1,2 finance sector, several innovations have emerged
In India alone, the outsize challenge has been – not only the way capital is structured but also
translated into a financing gap of $565 billion.3 how impact is delivered. There has also been
While the country has seen huge progress a rise in public-private partnerships, largely
across the social sectors, enormous challenges driven by government budgetary constraints,
remain. For example, only slightly over half of all the new public management ethos and the fact
children enrolled in standard 5 can read at least that innovation is increasingly cooperative and
a standard 2 level text, while just 21% of mothers network-based. Financing development through
receive full antenatal care. 4,5 extra-budgetary means and public-private
partnerships offer potential solutions, such as a
Closing this gap requires action on several focus on outcomes and improved performance
fronts; efficient and effective domestic resource management for service providers.
mobilisation, outcome-focused donor efforts to
ensure that money is spent well and harnessing India has a thriving social enterprise ecosystem;
private capital for good. In recent years, interest many organisations, however, struggle to access
has grown globally amongst governments and the capital they need. In a survey of Indian social
markets to develop new investment approaches, enterprises, 57% identified access to debt or
such as impact investing or purpose-driven equity as a barrier to growth and sustainability.9
finance. Impact investment refers to the And despite the developing ecosystem and
provision of finance to organisations with explicit potential of the impact investment space, the
expectations of financial returns as well as literature on impact investing in India is limited.
measurable social outcomes.6 The number of impact investors in India, the
sectors and areas they choose to invest in and
According to a recent analysis by the Global the future of instruments remain unclear. This
Impact Investing Network (GIIN), over 1,300 report aims to provide an analysis of the state
organisations manage $502 billion in impact of the impact investing sector in India, with
investing assets globally.7 The impact investing specific focus on the health, education and
sector in India attracted over $5.2 billion between agriculture sectors, as well as examining how
2010 and 2016, with over $1.1 billion invested in impact is measured. The report also investigates
2016 alone.8 several instruments, including equity and debt
investments as well as market-based, innovative
solutions such as social and development impact
With the emergence of impact investing as bonds (SIBs and DIBs hereafter) and innovation
a new asset class in India, investors are not or outcomes funds.
1
UNCTAD. (2014). Developing countries face $2.5 trillion annual investment gap in key sustainable development sectors. Press release.
2
United Nations Development Program. (2017). Impact investment to close the SDG funding gap.
3
Bhamra, A., Shanker, H., & Niazi, Z. (2015). Achieving the Sustainable Development Goals in India. A Study of Financial
Requirements and Gaps. Technology and Action for Rural Advancement, A Social Enterprise of Development Alternatives Group.
New Dehli, India: Devalt.
4
Annual Status of Education Report (ASER 2018).
5
Ministry of Health & Family Welfare. (2016). India Fact Sheet – National Family Health Survey (NFHS-IV)
6
Wilson, K. E., Silva, F., & Ricardson, D. (2015). Social Impact Investment: Building the Evidence Base. Available at SSRN 2562082.
7
The GIIN. (2019). Sizing the impact investing market.
8
McKinsey & Company. (2017). Impact investing: Purpose-driven finance finds its place in India.
9
British Council. (2018) The State of social enterprises in Bangladesh, Ghana, India and Pakistan.
W I
ithin the broader spectrum mpact bonds refer to a specific form of
of social investment models, outcome-based or payment-for-success
approaches range from purely contracting that often employs upfront
profit-driven investing without impact investment capital. The impact bond
expectations of social impact model aims at improving development
to pure philanthropic grant-making by donors outcomes for specific groups or beneficiaries.
and foundations. Corporate social responsibility Impact bonds in financial terms do not qualify
(CSR), socially responsible investing (SRI) and as bonds, since unlike bonds, impact bonds
a focus on environment, social and corporate tie financial returns to the achievement
governance (ESG) have also gained traction in of outcomes. Impact bonds have several
the last decade in India and abroad. Globally, potential advantages: when investment is tied
some of these trends have been driven by to outcomes, rather than activities, service
government-led advances in bringing analysis providers gain greater flexibility to adapt and
and rigour into public spending and social improve their programs; governments have
outcomes. the potential to transfer the financial risk of a
program to the private sector by only paying
Impact investing differs from corporate social for a program when pre-agreed outcomes
responsibility, environmental, social and are achieved. Such instruments may help
governance or socially-responsible investing promote a culture of data generation and use
as it goes a step further to include only and performance management. Impact bonds
those investments that have clearly defined in India remain at a nascent stage, with two
intentionality for achieving “measurable” impact, contracted in education and one in healthcare.
alongside financial returns. Financial returns for
impact investing range from simply preserving
the principal amount to matching the principal
RESEARCH METHODOLOGY
AND MOTIVATION
O
amount to even exceeding mainstream market
returns. Impact investors also focus on investing
ur methodology involves a primary
in social enterprises that do not just mitigate
survey of different stakeholders in
negative impacts but also generate net positive
the impact investing market in India.
impacts. Positive impacts may be demonstrated
The survey instrument is available
in various ways – from creating jobs and
in Appendix 1 at the end of this
employability to serving low-income consumers
document. Our sample includes a variety of
through housing, education, accessible
stakeholders, including those involved in impact
healthcare or inclusive finance. What further
bonds in India and portfolio companies where
distinguishes impact investing from traditional
impact investments were made. The survey
philanthropy has been the investment and return
captures the flow of current investments, average
motives of impact investors where scalability,
expected returns, sectors of investment as well
entrepreneur characteristics and experience
as the future of innovative financing in India.
weigh in. Despite the promise, cumulative
assets under impact investing remain marginal
compared to the billions of dollars invested under We designed a mixed survey that consisted of
CSR, ESG or SRI. The field is new and evolving both multiple-choice and open-ended questions.
fast in India, with approximately 30 firms in the We then compiled a list of entities involved in the
market, a subset of which is registered with impact investing and innovative financing space
the Impact Investors Council (IIC) in India. The in India and contacted their representatives for
impact investing market in India has mimicked interviews. Given the small size of the impact
the trends and challenges of the global impact investment industry in India, our survey sample
investment industry. However, there are several size remains small – 27 organisations. This
peculiar aspects of the Indian market which is, however, the largest survey of the industry.
make it interesting and critical to examine from a Earlier surveys were limited in scale as they
policy perspective. were confined to firms with membership to
E
detailed disaggregated industry characteristics.
Our survey addresses a larger number of
ach chapter of this report provides
industry features, including innovative financing
stakeholders with takeaways and
instruments and sector-level trends which
learnings from the survey and research
highlight the complexity and future potential of
around impact investing in India. With
the impact investing industry in India. Of the total
the first chapter, we outline a history
number of firms that we surveyed, 17 identify
of the Indian impact industry and initial results
themselves as impact investors, eight as impact
from the survey – these touch on average sizes
bond players and two as social enterprises. The
of investments, types of investments, average
interviews capture a range of perspectives from
returns across the industry and some sector-
a dynamic industry that is at a nascent stage.
level analysis of returns. In the second chapter,
The early empirical trends, however, hold promise
we deep dive into key sectors of investment—
of a future with far-reaching influence on
primarily, health, education and agriculture and
India’s development in sectors including health,
present trends and challenges investors face
education, agriculture and financial inclusion.
while operating in these markets. The third
chapter presents information on innovative
Our analysis also incorporates the data provided financing tools such as social and development
by the IIC. Collected in collaboration with a impact bonds, the market in India and the future
team from Duke University, the IIC data provides of these novel approaches. In the fourth chapter,
summary statistics of how members of the we show trends on measurements of impact and
council measure impact, the size and nature provide guiding steps for the industry to define
of their relative investments and the average impact more transparently and robustly.
returns they earned. For a global perspective, we
conducted an extensive literature review of global
Through the course of our research, we find
research on impact investing from developed and
several trends, many that mimic the international
emerging markets.
market and many that remain unique to the
Indian context. Our main findings show how the
The empirical focus of this study is on Indian impact investment story is continuously
industry trends within the health, education evolving and changing. Impact investments are
and agriculture sectors. We also identify the shifting from financial access, microfinance and
common challenges that are faced in the field energy towards traditional philanthropic sectors
and offer policy recommendations which can such as health, education and agriculture.
expand the scope and scale of impact investing Average returns beat market returns, even in
in India. Despite significant government impetus sectors which are traditionally social sectors with
to the development sector across India, there low returns. We see impact investors playing
remain some fundamental shortcomings hybrid roles, somewhere between private equity
because of limited resource allocation towards (PE) investors and accelerator/incubator style
it. Simultaneously, several opportunities for mentors. And find a strong focus on tech-based
private sector involvement are emerging within investments to achieve scale and reach. We
these sectors through the impact investing find impact to be defined loosely and a lack
route. Investments into the development sectors of cohesion on measures and indicators at a
can have a profound impact on poor, rural and sectorial and investment level. And a need to
excluded segments of the Indian population. build an evidence-backed knowledge base for
Hence, this report aims to inform stakeholders innovative financing and impact bonds.
– including government and industry—of the
methods, instruments and best practices that
are required to channel resources towards an
outcome (impact) focused approach.
A
ccording to the GIIN, impact take advantage of private sector efficiency and
investments are, “Investments made capital to achieve public sector goals. Inherent
with the intention to generate positive, within this setup is the ability to sustain focus
measurable social and environmental on performance and taking risks, such as
impact alongside a financial return.”10 implementing a promising but unproven idea.
Distinct from purely social-driven activities or
profit-driven investing, impact investing offers Outcome-based financing instruments,
the marriage of the two. It requires the deploying including SIBs and DIBs, fit within this larger
of private capital to create positive impact impact investing space. Impact bonds have
beyond financial return. gained momentum in recent years because
they offer an opportunity to translate socially
At the heart of impact investing lies the desirable goals into measurable economic
identification of investable enterprises or returns. Impact bonds are highly structured
portfolio companies. Chua et al. suggest that products that require collaboration between
social enterprises targeted for impact investing multiple actors, quality data collection, and a
should meet three criteria: satisfy an existing sophisticated and stable legal framework and
(unmet) market demand; have an explicit social thus can be challenging to implement in low
mission, or have the potential to be a sustainable and middle-income countries. Furthermore,
business and scale impact.11 A big enabler of the they have thus far proven difficult to scale and
impact investment industry in India has been the typically have high transaction costs.
existence of capital-hungry social enterprises,
I
equipped with ideas on how to deliver services
IMPACT INVESTING IN INDIA
to underserved populations. Where initially many
social enterprises found themselves trapped in ndia is at a significant crossroads in its
a critical financing gap, the space is now being history. The onset of a new era of economic
filled by impact investors deploying capital, reforms, in addition to development in line
harnessing business models and achieving scale. with ‘middle-income’ expectations, comes
with new requirements for reducing poverty
and inequality and boosting productivity. While a
While impact investing maybe categorised within
booming middle-class, good trade relations and
traditional asset or investment classes, there are
strong democratic values position the country
several factors that differentiate it, such as the
strategically to be one of the most prosperous in
unique skills that are required to measure, analyse
the region, India remains a country of contrasts.
and evaluate social return and the development
Its large cities face the quandaries imposed by
of an appropriate risk-return matrix. A potential
rapid urbanisation, and rural regions still suffer
advantage of impact investing is the capacity to
from entrenched poverty and under-development.
10
GIIN. (2019). What you need to know about Impact Investing.
11
Chua, C., Gupta, A., Hsu, V., Jimenez, J., & Li, Y. (2011). Beyond the margin: Redirecting Asia’s capitalism. Hong Kong: Avantage Ventures.
12
Ministry of Finance (mid-year analysis for 2010-11).
13
For more on this, please read - Chakrabarti, R., & Ravi, S. (2011). At the crossroads: Microfinance in India.
14
Ministry of Corporate Affairs & https://indianexpress.com/article/opinion/columns/indian-companies-act-corporate-social-
responsibility-funds-csr-activity-5202579/
15
Union Budget, Government of India.
16
Central Bureau of Health Intelligence. (2018). National Health Profile.
S
hifting culture, growing capital markets and the rise of digitisation are all changing the
impact investing landscape in India, creating more opportunities for capital deployment.
Building a robust domestic impact investing industry warrants the need to analyse the
landscape. By interviewing over 25 impact investors, social enterprises and stakeholders
involved in impact bonds in India, we aim to present results that help outline what the state
of the sector is. We focus on what sectors impact investments are going into, how firms measure
impact and the potential of innovative financing tools such as impact bonds. A portion of the report
also focusses on data collected by the IIC along with Duke University from late 2017. We use this
data (hereafter referred to as IIC data) to inform analysis where appropriate or necessary. Past
literature and data on impact investing in India have been collected by McKinsey (2017) and IIC (with
the help of Duke University) (2018): we use their analysis to supplement our findings. However, given
the nature of our instrument, we focus on the findings of our survey. This section outlines the results
from the survey for both equity and debt funds interviewed by the Brookings team.
In our survey, we found that half of the impact investors in India (50%) had average investments
above $20 million for the current financial year (Figure 2). Of these investments, nearly 75% of impact
investors made equity investments in portfolio companies, followed by 17% that made pure debt
investments and 8% who made debt, equity & blended instrument investments (Figure 3). The impact
sector in India recorded 48 exits between 2010 and 2015.18
17
As per data gathered by the IIC and McKinsey India.
18
As per data gathered by the IIC and McKinsey India.
40%
30% 25%
20%
12.5% 12.5%
10%
0%
0%
Less than 3 million 3 to 5 million 5 to 10 million 10 to 20 million 20 million and above
60%
50%
40%
30%
20% 17%
10% 8%
0%
Equity Debt Debt, equity & blended instruments
83%
100%
• Seed & early-stage funding – Seed investors typically invest between $100,000 to $500,000.
• Series A – Investments in this category vary between $500,000 to $2 million.
• Series B – Funds typically invest between $2 million to $5 million though the upper bounds
reach up to $10 million.
As per IIC data, most investors (10 out of 13 surveyed) stated that they invested in portfolio
companies in early stages i.e. seed or series A; however, there has been a shift in this trend with
considerable investments in mid and growth stages. For example, an investor interviewed by the
Brookings team stated that the firm invests between $1 million to $2 million in the first round and up
to $10 million over the lifecycle of a company.
SOURCE OF FUNDS
As per IIC data, the largest amount of funds for impact investors come from the “others” category.
In the sample, this category is dominated by “fund of funds” including insurance companies. The
endowment fund also contributes considerably to the fund pool with over $5 million coming from this
category. Small contributors are government and other charitable institutions.
0 1 2 3 4 5 6 7
In millions of $
Average
40%
35%
30%
25% 25%
25%
20%
15%
10% 8%
5%
0% 0%
0%
0% (No return 0-5% 5-10% 10-15% 15-20% >20%
expected)
The data shows that 67% of impact investors are beating market returns, with nearly 42% stating that
they received returns above 20%. Another 25% of impact investors achieved returns in the 15-20%
range, 8% of impact investors between 10-15% and 25% of impact investors achieved below market
returns of between 5-10%. This remains consistent with the data collected by the IIC and McKinsey.
In fact, according to McKinsey, the top one-third of Indian Impact Investment funds generated
median internal rate of return (IRRs) of 34% in 2017.
Expected return data is also available by sector, with agriculture expecting average returns above 20%,
healthcare between 15-20%, financial services (including microfinance) between 10-15% and skilling
and housing between 5-10% average returns. There was greater variability in the returns reported in
the education sector, where impact investors reported returns in the wider range of 5% to 20%.
Financial Service
Skilling & Housing (incl. microfinance) Healthcare Agriculture
Education
80%
58% 58%
60%
50%
40%
33% 33%
30% 25% 25% 25%
20% 17%
8% 8%
10%
0%
Education Agriculture Healthcare Financial Housing Energy Employability WASH Microfinance ICT SME Civic Tech
Services (exc
microfinance)
100.00%
11.20% 16.70%
25.00%
33.30% 36.40% 36.40%
80.00% 41.70% 41.70%
46.20%
44.40%
60.00% 25.00%
66.70%
36.40%
40.00% 33.30%
58.30% 54.50%
46.20% 58.30%
50.00%
20.00% 44.40%
25.00% 27.20%
16.60%
8.40% 7.60% 9.10%
0.00%
Investment Professionals Innovative Exit options Impact Research & Capital across Govt support Political
opp w skill sets deal structure measurement data risk/return support
spectrum
Globally, when compared to the GIIN survey of as enablers for this shift. Overall, a shift
2018, Indian impact investors tend to have very towards agriculture and healthcare represents
similar challenges where appropriate capital and several positive externalities, given the large
exit options appear as the two most significant proportions of populations in India that remain
challenges (Table 10). When looking at the unserved in these sectors. It could also signal
largest significant challenge, appropriate capital market readiness for these sectors to deploy
across the risk and return spectrum stood out impact capital or a broader impact definition by
both globally and in the Indian context. This funds themselves to find solutions for serving
is particularly relevant if impact investment these traditional development sectors.
opportunities that credibly deliver risk-adjusted
market returns are limited in India. • The enabling role of technology in
scale & scope
1.3 TRENDS IN IMPACT Early adopters in impact investing in India focus
and rely extensively on technology both as an
INVESTING IN INDIA
W
enabler and as a solution. As more impact funds
hen looking at the Indian impact make investments beyond pure brick-and-mortar
investment space, we set out to models that have been traditionally difficult to
identify and understand larger monetise given the smaller ticket sizes in the
trends within the sector. Much sector, tech-enabled services and solutions
of the analysis in this report has facilitate the ability to achieve scale and a pan-
been informed by the survey conducted by the India presence. Technology differentiation also
Brookings team. While the majority of the survey stands out, where funds look beyond business
consisted of multiple-choice options for impact models that are easily replicable towards tech-
investors, the subjective parts of the survey solutions that offer services or products. Indian
informed this section of the report. impact investors often find highly disruptive
and scalable business models, where tech-
focussed products and services help serve a
LARGER TRENDS IN IMPACT INVESTING IN INDIA greater number of customers.
• A shift towards agriculture & healthcare
We observed a shift of impact investments • Shift from passive to active investing
towards the agriculture and healthcare sectors, with a focus on entrepreneurs
which previously amounted to much smaller A top concern for impact investors remains
volumes and muted interest from funds. This the need to build and support skills and talents
is a positive trend, as these sectors represent of their investees. Many entrepreneurs lack
a deviation from previously popular sectors of enough business or market experience, which is
micro-finance and energy.19 While the reasons where impact investors have a potential value-
for this shift are unclear, policy uncertainty add. An existing “entrepreneur challenge” was
around the microfinance sector after the 2010 resonate within the industry, with many impact
Andhra Pradesh ordinance20 and high capital investors understanding that the long-run
requirements of the energy sector were noted
19
McKinsey & Company. (2017). Impact investing: Purpose-driven finance finds its place in India.
20
Indian Microfinance. (2010). Andhra Pradesh Microfinance Institutions Ordinance 2010 comes into force. Accessed June 2019.
SECTORS OF IMPACT
INVESTMENT ACTIVITY
I
mpact investing activity in India has so there is a considerable shift now. Indian impact
far concentrated on government service- investors have largely identified three key social
provision gaps and underserved sectors issues to focus on — health, education and
(such as health and education) that are driven agriculture — followed by affordable housing,
by unmet customer needs. Globally, impact energy, employability and skilling and financial
investing and impact bonds also engaged in services (Table 11). It is important to note that
interventions that were difficult for governments these are sectors where most impact investors
to test or scale or that covered sectors or areas have some engagement, rather than the largest
that were typically excluded from traditional sectors in terms of amounts invested. In this
government services. section, we focus specifically on the three sectors
of health, education and agriculture, as the
As per the GIIN 2018, financial services, energy largest sectors where impact investor interest is
and microfinance remain the top sectors where concentrated. We look at the key opportunities for
global impact investors deploy capital. While investing, early trends on their scale and scope
up until 2017, the same could be said of India,21 and the key challenges investors face.
50%
40%
33%
30% 25%
20%
10%
0%
Education & Agriculture Healthcare & Financial Housing & Energy Employability, WASH,
Services (exc microfinance) Microfinance
21
McKinsey & Company. (2017). Impact investing: Purpose-driven finance finds its place in India.
80%
58% 58%
60%
50%
40%
33% 33%
30% 25% 25% 25%
20% 17%
8% 8%
10%
0%
Education Agriculture Healthcare Financial Housing Energy Employability WASH Microfinance ICT SME Civic Tech
Services (exc
microfinance)
2.1 HEALTH
A
n analysis from Duke University and the Calvert Foundation identifies key opportunities for
impact investing in the health sector. Services for the poorest rural populations are likely
to be best served by grant funding, while those for high-income urban populations may be
met by traditional capital; impact capital, therefore, is most suited to enterprises serving
low- to middle-income populations.22
22
Duke University and the Calvert Foundation. (2015). Strengthening health systems in developing countries through private
investment. Lessons from the Global Health Investment Landscaping Project (GHILP).
I
healthcare in India, focusing on tier-two or tier-
three cities, providing secondary or specialised mpact investors in education differ in their
care facilities in an organised way (for example, motivations and expectations, ranging from
specialty services such as eye-care or dental those who emphasise impact, to those who
care facilities) or investing in disruptive are primarily motivated by financial returns.
technologies in the diagnostics market (such as Those focusing on financial returns have
ultra-sounds). Key focus areas in health impact tended to target services aimed at users higher
investing are pathology, radiology, collecting up the socio-economic ladder, who have the
blood samples and testing, focusing on cost- ability to pay, while impact-oriented investors
efficiency in collecting e-health or health-data. focus on vulnerable beneficiaries, with little
expectation of returns.27
The healthcare sector is capital extensive with
high upfront costs and capex. Furthermore According to a report by D. Capital and Open
impact investing in the healthcare sector is Society Foundation, funders in the education
characterised by longer gestation periods and space could look beyond school infrastructure
heavily reliance on technology. Due to this, by focusing on opportunities to expand social
investments within the sector are driven by a impact and returns. This could include, for
need to optimise time and the geographic reach example, the provision of low-cost tablets
23
The GIIN. (2018). Annual Impact Investor Survey 2018.
24
Duke University. (2015). Opportunities and Challenges for Global Health Impact Investors in India and East Africa.
25
Duke University. (2015). Strengthening health systems in developing countries through private investment.
26
McKinsey & Company. (2017). Impact investing: Purpose-driven finance finds its place in India.
27
D. Capital Partners & Open Society Foundation. (2013). Impact investing in Education: An overview of the current landscape. ESP
Working Paper Series.
28
Impact investing in Education: An overview of the current landscape. ESP Working Paper Series, D. Capital Partners & Open
Society Foundation, 2013.
29
The GIIN. (2018). Annual Impact Investor Survey 2018.
30
UNESDOC. (2019). Global education monitoring report: Migration, displacement and education: building bridges, not walls.
31
D. Capital Partners & Open Society Foundation. (2013). Impact investing in Education: An overview of the current landscape. ESP
Working Paper Series.
32
Malani, S. (2016). Impact Investing in K-12 Education in India.
33
British Council. (2015). Social enterprise: An overview of the policy framework in India.
34
Malani, S. (2016). Impact Investing in K-12 Education in India.
35
Malani, S. (2016). Impact Investing in K-12 Education in India.
36
AVPN. (2017). Funding education with impact: a guide for social investment in India.
37
McKinsey & Company. (2017). Impact investing: Purpose-driven finance finds its place in India.
A
or products to schools, given the existing
competition among service-providers, and
griculture remains one of the
getting repeat business from schools. All this
top priority sectors of the Indian
further leads to the issue of scale and the need to
economy, employing nearly 50% of our
convert or differentiate products so they fall into
nation’s unskilled, rural, and informal
a “must-have” category in a long list of priorities
workforce. Agriculture in India is,
that low- or middle-income households face.
however, bound with challenges - from highly
fragmented landholdings and low purchasing
The education sector is also rife with regulatory power to support prices and subsidies in
and structural challenges. Traditionally, the fertilisers and electricity. Agriculture is also a
education sector in India falls into the purview market ridden with politics and low asset bases.
of the government and non-profit space. Policy Globally, impact opportunities in agriculture
in India has always treated priority sectors, extend to a wide range of activities. Typically,
such as education, as sacred, protecting it from impact investors have invested either in the
for-profit organisations. This creates a hostile form of real estate investments in sustainably
environment for education entrepreneurship, managed farmlands, debt investments for
creating challenges for impact investors farmers, cooperatives and food enterprises, and
that have expectations of financial or equity equity investments in retailers and agricultural
returns. While creative structuring has allowed technologies focused on the efficient use of
for-profit portfolio companies to get around energy, inputs, and natural resources. As an
this, it is difficult for investor money to go investment theme, in a country as large as India,
into a profit-making business with non-profit agriculture provides several entry points. From
customers such as schools (which, in many investments in improved access (either in the
cases, are customers for these companies and form of markets, farmer inputs, information
are mandated to be non-profit). Many Indian services and capital) and efficient employment
impact investors have also made investments to services that help mitigate agricultural price
outside of the school space to avoid issues volatility and better management of natural
related to the non-profit status that schools resources.38 Through these wide asset classes,
or educational institutions must maintain, impact investors may activate a fuller range of
yet there is consensus that there remain few investment assets, at different scales, in various
scalable solutions in the non-school space. geographies and in pursuit of multiple returns
(social, financial and environmental).39
Given the inherent nature of the education sector
where business models and markets break due TRENDS IN THE AGRICULTURE SECTOR
to the larger set of stakeholders involved, impact
Globally, investment in food and agriculture (as
investors realise the difficulties of operating
in India) represented the top spot (among the
in the education space. In many cases, the
top three sectors ), with 37% of investors listing
purchasers of services are administrators or
these as the sectors where they deployed capital
principals in schools, decisions are taken on
in 2017.40 Further, 57% of respondents professed
behalf of children by parents and the services
at least some allocation to food and agriculture,
are delivered via teachers. The multitude
more than to any other sector, although it
of stakeholders make education markets
38
EC External Services Evaluation Unit. (2009). Outcome and Impact Level indicators – agriculture and rural development. Working Paper.
39
Lang,K., Humphreys. J., Rodincuic., A. (2017). Impact investing in sustainable food and agriculture across asset classes.
Financing Resilient Value Chains through Total Portfolio Activation.
40
The GIIN. (2018). Annual Impact Investor Survey 2018.
41
The GIIN. (2018). Annual Impact Investor Survey 2018.
A NEW MECHANISM
FOR IMPACT INVESTING:
BLENDED INSTRUMENTS &
IMPACT BONDS
3.1 BLENDED INSTRUMENTS loans, and payments from a foundation to
I
investors are triggered in the case of verified
mpact bonds emerged out of the broader outcomes, while the principal is repaid by the
tradition of payment by results (PbR), in social enterprise.43,44
which payments are made only when pre-
agreed outcomes or outputs are achieved and Example45: Financing low-fee
verified. This includes a variety of different private schools in India
mechanisms, depending on which kind of entity
takes on the financial risk. For example, in the The Michael and Susan Dell Foundation
case of results-based aid (RBA), the risk is (MSDF) have piloted variable interest loans,
taken by the government, while in results-based with reduced interest rates in the case of
financing (RBF), service providers take on the improved student outcomes. MSDF loaned $2
million to the Indian School Finance Company
risk.42 In an impact bond, the financial risk is
(ISFC), which then provides loans to schools.
taken by an investor, who provides upfront capital Student outcomes are tracked for recipients
to a service provider to deliver an intervention. If of finance from ISFC: increases in test scores
outcomes are achieved, payment is made to the have the potential to trigger up to a 10%
investors by the government (in a SIB) rebate on the school’s loan, and the interest
or a third party (in a DIB). payments of ISFC are reduced in turn.
Other instruments have been designed 3.2 HOW IMPACT BONDS WORK
I
to promote a similar approach for social
enterprises, for example, Social Impact mpact bonds combine elements of payment-
Incentives (SIINC) which use premium payments by-results contracting, public-private
to reward outcomes achieved by social partnerships, and impact investing.46 In an
enterprises, and the Social Success Note (SSN), impact bond, an investor provides upfront
in which entrepreneurs access concessionary capital to a service provider, who delivers
42
Gustafsson-Wright, E., & Gardiner, S. (2016). Using Impact Bonds to Achieve Early Childhood Development Outcomes in Low-and
Middle-Income Countries. Washington: Brookings Institution.
43
Roots of Impact. (2016). Social Impact Incentives: Enabling high impact social enterprises to improve profitability and reach scale.
44
Yunus Social Business. (2015). Introducing the Social Success Note.
45
Rangwala. R. (2018). A New Impact Investing Model for Education. Stanford Social Innovation Review. January 17.
46
Gustafsson-Wright, E., Boggild-Jones, I., Segell, D., & Durland, J. (2017). Impact bonds in developing countries: Early learnings
from the field. Center for Universal Education at Brookings, 81.
IMPACT INVESTING
IMPACT
BONDS
I
If a set of pre-agreed metrics are achieved, the
outcome funder will repay the investor their mpact bonds are a novel way of financing
upfront capital, plus a return. In cases where social services, with the potential to direct
results are not achieved, the investor typically spending towards results and to improve
stands to lose their investment, while the service provider capacity. There is a range
outcome funder pays nothing. In addition to of facilitating factors that are likely to be
these central roles, many impact bonds have necessary for the success of an impact bond
also involved intermediary organisations, which structure. These include the legal and political
support transaction structuring and raising feasibility of contracting an impact bond in a
capital47, as well as evaluators, who verify the particular context, as well as the administrative
achievement of results. capacity of a potential outcome funder, and the
capacity of potential service providers to collect
Ultimately, the actor who holds the contract and manage data and respond to feedback to
with the outcome payers plays an important adapt service provision. Data availability is also
leadership role to ensure that the predetermined crucial: this includes data on the outcomes of
outcome can be achieved. For an impact bond interest, as well as cost data on the price of
to succeed, stakeholders have to be aligned on an intervention, or on the cost associated with
the defined outcomes of the bond. Impact bonds inaction. Finally, to engage in an impact bond,
are often first commissioned to have an impact where upfront capital is required, there needs to
where there is a gap in current social services. be an investor appetite for the project.
They offer opportunities to implement innovative
programming without assuming any monetary
3.4 GLOBAL LANDSCAPE
A
risk or making significant shifts to current service
provision structures. When investment is tied s of June 2019, 163 impact bonds
to outcomes, rather than activities, service have been contracted around the
providers gain greater flexibility to innovate and globe. The majority of these (150)
improve their programs, resulting in outcomes have been in high-income countries,
that really matter. Governments and taxpayers while only 13 have been contracted in
transfer the risks of program performance to the developing countries (nine DIBs and four SIBs).
private sector and enhance the value for money More than a third of the impact bonds to date (67)
of a given intervention, by clearly specifying the have been contracted in the United Kingdom, 25
cost of the measurable outcomes, instead of in the United States, 11 each in Australia and the
the inputs, of any program ex-ante. Netherlands, nine in Portugal, and four each in
Canada and France. Several other countries have
contracted between one and three impact bonds.
47
Gustafsson-Wright, E., Gardiner, S. & Putcha, V. (2015). The potential and limitations of impact bonds: Lessons from the first five
years of experience worldwide.
THE PROMISE OF IMPACT INVESTING IN INDIA 29
Most of these impact bonds have been contracted in social welfare and employment (56 and 50,
respectively), with 25 contracted for health, 18 for education, 11 for criminal justice, two for the
environment and one for agriculture.
48
Gustafsson-Wright, E., Boggild-Jones, I., Segell, D., & Durland, J. (2017). Impact bonds in developing countries: Early learnings
from the field. Center for Universal Education at Brookings, 81.
W
the quality of private healthcare facilities, to
reduce maternal and neonatal mortality rates,
hile the impact bonds market in with the potential to save the lives of up to
India is still young, it is arguably 10,000 women and newborns over five years.
the most active among developing Two service providers, the Hindustan Latex
countries. With three contracted Family Planning Promotion Trust (HLFPPT),
deals and several more in design, and Population Services International (PSI),
there is an appetite for using impact investment will work with up to 440 facilities to help them
to drive the achievement of outcomes across a work towards accreditation as quality maternity
range of social sectors. A 2016 white paper from care providers.52 Palladium, the intermediary
organisation, will work with providers to help
the IIC suggests a range of potential SIB focus
them meet these standards, while $3 million of
areas, including health and sanitation, increasing
upfront capital for the services was provided by
power reach and reducing malnutrition.50
UBS Optimus Foundation.
The investment environment for impact bonds In addition to the capital from UBS Optimus,
in India remains largely driven by international Palladium, PSI, and HLFPPT will also contribute
foundations on the investor and outcome- 20% of the total upfront capital. If the service
funder side (for example, the UBS Optimus providers are successful at readying the facilities
Foundation has been the investor for all three for accreditation, outcome payments will be
of the contracted deals). However, the Quality made by USAID and Merck for Mothers. The
Education India DIB includes Tata Trusts, a total potential outcomes payment is $18,000 per
domestic outcome funder. Much movement facility, from an outcomes fund of $8 million.
has built around creating a landscape and
49
Gustafsson-Wright, E., Gardiner, S. & Putcha, V. (2015). The potential and limitations of impact bonds: Lessons from the first five
years of experience worldwide.
50
Impact Investors Council. (2016). Social Impact Bonds (SIBs) and representation for requisite changes to facilitate SIBs in India.
White Paper.
51
Gustafsson-Wright, E. & Boggild-Jones, I. (2017). Rallying behind maternal and newborn health: A new impact bond launches in India.
52
USAID. (2017). The Utkrisht impact bond.
The first DIB for education, the Educate Girls DIB, was launched in Rajasthan in 2015, and closed after
three years in 2018. The service provider, Educate Girls, targeted children across 166 public schools in
the Bhilwara District, identifying out-of-school girls and encouraging enrolment, as well as delivering
a child-centric curriculum to boys and girls three times a week. The investor, UBS Optimus Foundation,
provided upfront capital of approximately $270,000, and received a 15% internal rate of return from
the outcome funder, the Children’s Investment Fund Foundation (CIFF).
The program enrolled 768 out-of-school girls, while the learning intervention reached an estimated
7,300 children. IDinsight evaluated the results using validated administrative data to track enrolment,
as well as a clustered randomised controlled trial (RCT) to measure learning outcomes. Against a
target of 79% enrolment of out-of-school girls, the final result was 92% enrolment. This rose steadily
each year, from 38% in year one to 73% in year two. The learning outcomes proved more difficult to
achieve: the goal was to increase the grade levels across English, Math and Hindi compared to a
comparison group. While the target increase was 5,592 total grades, only 1,461-grade improvements
were recorded in year one, and 2,895 in year two (Figure 17). The final grade improvements compared
to the control group stands at 8,940, or 160% of the target.
In this DIB, the learning outcomes accounted for 80% of the outcome payment, against just 20% for
enrolment. Educate Girls made changes to their program delivery, to ensure that improvements were
made in response to lower-than-expected learning outcomes.54 These changes included increasing
the number of teaching sessions, aligning teaching groups to competency levels, and emphasising
personalised learning. Providing a focus on outcome metrics, and with performance management
support from the project manager, Instiglio, the Educate Girls team were able to respond to the
information on learning outcomes, and adapt their provision to improve results.55
53
IDinsight (2018). Technical Report
54
Sturla, K., Shah, B. & McManus, J. (2018). The Great DIB-ate: Measurement for Development Impact.
55
Boggild-Jones, I. & Gustafsson-Wright, E. (2018). World’s first development impact bond for education shows successful
achievement of outcomes in its final year.
The newest impact bond in India launched in September 2018. This contract for education builds off
the learnings of the Educate Girls project, but on a more ambitious scale, with the potential to improve
learning outcomes for over 300,000 children in grades 1-5 in Delhi and Gujarat over the course of
four years.
The Michael and Susan Dell Foundation is the anchor outcome funder, alongside a consortium
of funders convened by the British Asian Trust, including Tata Trusts, Comic Relief, the Mittal
Foundation and British Telecom. Multiple service providers will provide different interventions, to
expand the knowledge base on the differing costs of achieving outcomes. For the first year, three
service providers delivered interventions - Gyan Shala, the Society for All Round Development
(SARD), and the Kaivalya Education Foundation (KEF) – while a fourth implementer, Pratham
Infotech, will also be engaged from year two onwards. Gyan Shala will operate approximately 340
learning centres for children in slums in Ahmedabad and Surat, while the SARD will deliver two
intervention models: a remedial program in 30 schools, and a teacher training program in 100
schools (with an additional 100 added each year), both in North Delhi. KEF will provide leadership
development training in 216 schools in Ahmedabad for the head teacher, as well as for one literacy
and one numeracy teacher. Pratham Infotech will deliver the Mindspark adaptive learning software to
students in Uttar Pradesh. Dalberg will provide performance management for the service providers.
As with the first two impact bonds in India, UBS Optimus Foundation will provide upfront capital for
the service providers – with a risk investment of $3 million. However, instead of receiving repayment
in the final year of the contract, in this model outcomes will be assessed each year, with repayments
recycled into the next year of the program, thus reducing the amount of capital required upfront.
Gray Matters India will evaluate learning outcomes relative to a comparison group for each service
provider, using an assessment developed specifically for the DIB. With three service providers
offering four different interventions, the DIB also has the potential to gather information on the cost
of achieving outcomes, in order to build out a rate card of prices for education outcomes.
There are no readily available legal frameworks to anticipate and address legal challenges of impact
bonds in India. In order to avoid risks of failing local legal compliance, it is important to discuss what
laws and regulations govern impact bond-type contracting in the Indian context.
Since impact bonds refer to a form of results-based contracting, such forms of contingency-based
contracts are allowed under the Indian Contract Act, 1872. In this view, all contracts (whether
between the government or private entities) depend on the terms and relevant bidding requirements.
Under the Contract Act, the government may sign a contract with an investor through three processes
- competitive bidding, competitive negotiation or by Swiss challenge. Competitive bidding involves a
public bid process to select service providers based on their financial and technical capabilities. The
rules of competitive bidding are framed by the Central Vigilance Commission. Competitive negotiation
involves the government inviting proposals for specific service objectives and is often done for social
sector projects. The Swiss Challenge approach refers to proposals being received by governments
from private participants suo moto. Impact bond investors can sign contracts with government
departments through any of the above-mentioned bidding processes.
Foreign entities may set up a presence in India by establishing liaison, project or branch offices,
wholly owned subsidiaries or joint ventures. Different rules framed by the Reserve Bank of India
(RBI) and the FEMA (Foreign Exchange Management Act) 1999 must be adhered to. Social Venture
Funds and Section 8 non-profit companies may also be set up by foreign bodies in India.
Once investors and government entities have officially signed a contract, several conditions are
permissible under law that allow for intermediaries or service providers to be contracted. AZB &
Partners advise intermediaries to be set up as registered bodies in India. Intermediaries may act as
financial or non-financial advisors depending on the nature of the impact bond contract. The Contract
Act also allows intermediaries to choose relevant service providers for further contracts. However, the
choice of the service provider may be subject to the terms of the government contract. This includes
necessary disclosure to relevant government entities prior to a bidding process. The government may
also set basic eligibility criteria for private contractors during a bidding process. This could mean
accepting service providers (that intermediaries contract) that belong to a specific sector or have a
proven track record, for example.
Provisions in the law also allow overcoming issues related to annual budgeting. Governments can
pay private parties in the form of contractual payments (that may be advance, progress or final
payments). Contract law allows for governments to get into multi-year payment or budgeting
contracts or till the time the validity of the contract expires. If the government fails on its contractual
requirements, penal consequences could be imposed by the private entity on the government. Public
procurement laws also allow for monitoring of government contracts through external agencies or
independent third parties if they are based on a “standardised scale.” Governments and private parties
may mutually decide on third-party evaluators and can choose to set aside a certain percentage of
costs of the project for evaluations.
56
Instiglio. (2014). Legal Road Map for Social Impact Bonds in Developing Countries. Instiglio (a non-profit intermediary involved
in several impact bonds globally, including the Educate Girls DIB in India) undertook a research project of the legalities under
which impact bond contracts can operate across seven countries. One of the countries covered included India, where AZB
& Partners provided a roadmap and analysis of different laws under which SIB or DIB contracts may fall. Our analysis offers
recommendations based on Instilgio’s analysis in order to understand, mitigate and calculate legal risks in the context of the
Indian jurisdiction.
Figure 18: Interview results – Impact bonds & impact investor perspectives
Negative 15%
Catalytic 23%
The real hurdle for impact bond development amongst Indian investors, the financial case for
in India, according to our respondents, is impact bonds needs to be strengthened.
making sure early impact bond contracts
provide a proof of concept and prove financially Interviews with key stakeholders revealed
viable. Showcasing investment validity and issues related to the highly quantitative and
impact achievement remain top priorities for technical nature of impact bond management
stakeholders involved in impact bonds. From the and assessment and high costs of evaluations
supply side, service providers such as Educate make it difficult for impact investors to align
Girls have started building momentum towards their double bottom line of social impact and
the development of an impact bond market in monetary return, given the current market in
India. Educate Girls and the others that have India. Some expressed that the impact bond
been selected to engage in impact bond projects, model must be further tested, and more evidence
have some experience with monitoring and must be collected before impact bonds attract
evaluation, a critical element of an impact bond. Indian investment. Cost of evaluations must
For example, Educate Girls had some experience be kept reasonable, so as to not become an
with conducting outcome evaluations of their inhibiting factor for future impact bond success.
projects, which was a contingency of previous In fact, over the course of our interviews, a top
funding. The participation of UBS Optimus challenge identified by current impact bond
Foundation in both the Educate Girls and Utkrisht stakeholders in India was the measurement of
impact bond indicates interest from international outcomes and impact (Figure 19).
investors but in order to build momentum
Fundraising 11%
Globally, the level of investor involvement SIBs, since they are multi-year investments; thus,
has varied in impact bonds. Some investors the government, as the outcome funder, needs to
have taken active roles, for example, Bridges be able to spread appropriated funds throughout
Fund Management in the United Kingdom is fiscal years and issue outcome-based payments.
deeply involved in many of their impact bonds, However, this can be a challenge, as usual status-
where they lead the project from the initial quo operations within government departments
development stages to day-to-day performance tend to tie fiscal expenditures on a yearly basis.
management. They have developed in-house Therefore, in order for a SIB to be feasible, there
capacity to liaise with the government and should be legal mechanisms that allow for future
service providers, avoiding costs incurred by payments contracting and allow for payments
engaging an intermediary.Service providers in to not be contingent upon political fluctuations.
India are primarily motivated to participate in For example, in the case of the U.K, the Cabinet
impact bonds because of access to capital, Office Centre for Social Impact Bonds within the
allowing them to operate and continue Social Investment Finance Team and the Big
providing services. With the presence of stable Lottery Fund have helped overcome the challenge
and long-term funding, they can focus on the of annual budgeting obligations. Similarly, in the
creative implementation of their programs and U.S during the Obama administration, the White
efficient delivery. An increased focus on service House requested funding for impact bonds (Pay
implementation paired with close coaching and for Success as they are known in the US) in each
support from other impact bond stakeholders White House budget request since the 2012
may encourage performance improvement fiscal year. Notably, the budget requests since
and, in turn, a better chance at reaching the the 2014 fiscal year have included a request for
desired outcome. To be ready to scale through a $300 million Pay-for-Success (SIB) Incentive
an impact bond, service providers in the future Fund, which is modeled after the U.K.’s Social
will need a strong operating model, a thorough Outcomes Fund and intended to smoothen
understanding of what it will take to adapt and savings across levels and departments of
expand the target intervention, familiarity with government.
social impact assessment, and experience
of working with partners. Local community Impact bonds will likely face fewer barriers in
knowledge and relationships will also be of India if they are used to expand funding in areas
high importance. where the government wishes to improve the
quality of existing services, and/or reduce the
Public budgeting remains a crucial element for inequality of access. Political economy can make
consideration in an impact bond model. For it more difficult to implement in areas that are
example, the budget structure remains crucial in traditionally provided by the public sector.
O
prices. Others, such as the Commissioning Better
ne of the main critiques of the impact Outcomes Fund, had a broader remit of growing
bond mechanism has been the time the SIBs market, and did not prescribe outcomes
and cost associated with structuring in a rate card (Big Lottery Fund, 2015). Further
the deals. This is an important point rate cards have been developed in other high-
and should be considered critically. income countries, for example for homelessness
However, it is important to note that due to the in New South Wales, Australia.57
transparency brought through the contracting
process, costs in impact bonds are often made In addition to the outcomes funds developed
more explicit than in traditional grant-making in high-income countries, several outcomes
based on inputs, or traditional results-based funds are in design for low- and middle-income
financing. However, in some cases, the number countries. This includes Social Finance India’s
of actors involved, as well as the challenge of Education Outcomes Fund (IEOF), which will seek
setting prices and negotiating outcome metrics, to raise $1 billion to fund a range of education
may delay the contracting of impact bonds, and outcomes, with a focus on poor and low-income
thereby increase costs. One potential solution students. Although the IEOF is still in design,
has emerged in the form of outcomes funds. initial focus areas include early childhood
Outcomes funds provide an opportunity to education, primary education, secondary
contract multiple impact bonds from the same education, inclusive education, and school-to-
funding pool. workforce transition. Social Finance India has
completed a landscape analysis of around 150
As with the first impact bond, outcomes funds service providers, which resulted in a shortlist of
were pioneered in the UK, which has launched approximately 35 organisations for further due
seven outcomes funds to date. For several of diligence. There is also an appetite for pooling
these, a rate card was developed, which specified investor funding. For example, the India Impact
the impact metrics and the price the outcome Fund is aimed at catalysing debt for impact in
payer was willing to pay for their achievement, housing, health and education.58
57
Office of Social Impact Investment. (2018). Market Sounding: Homelessness Rate. NSW Government.
58
ET Bureau. (2018). Social Finance launches $2 billion India funds.
T
he cornerstone of impact investing is Several initiatives, most notably by the GIIN
the measurement of social impact. and Impact Reporting and Investing Standards
Impact measurement helps support (IRIS), have helped harmonise approaches
the idea of social return which in turn to social and environmental returns in the
helps build credibility and supports the form of output and impact measures either
growth of the industry. However, a key paradox through metrics or ratings. While their use is
within the impact investment industry is the prevalent in the Indian context, measurement
fact that impact investors have a very hard time largely remains decentralised and proprietary
measuring impact. Though there is widespread in nature. High costs of conducting evaluations
agreement on the need for better and timely have often led to impact measurements being
measurement of social returns, ironically, underappreciated, especially since impacts
however, it remains an ongoing challenge for of investments can occur many years after
the industry. Within the impact bond market, investments are made. This has often meant
however, measurement has been much more that markets have chosen the easier option of
concrete including measures of both outputs not measuring impact robustly.
and outcomes for individual beneficiaries of
services. Nevertheless, more effort could be
made to harmonise robust measures of success 4.1 RESULTS FROM THE
BROOKINGS SURVEY
I
in all sectors.
59
For detailed analysis of impact measurement across the sectors of health, education and agriculture, please see Appendix 2.
100%
90% 86%
80%
70%
60%
50%
40%
30%
20%
10% 7% 7%
0%
Measure for all Measure for some Plan to do in the future
investments/programs investments/programs
60%
50%
40%
30%
21%
20%
14%
10%
0%
IRIS, GIIRS & PRISM Ref & Built on IRIS & others Propreitory & Custom Metrics
The IIC Survey also asked impact investors how often they captured data from their investees and a
majority of funds (almost 62%) preferred capturing data on a quarterly basis (Figure 22).
Semi-annually, 18%
Quarterly, 47%
50%
45% 44%
40%
30%
25%
22%
20%
15%
10%
5%
0%
One Indicator Two Indicators Three Indicators All four indicators
Across organisations, there is no single and largely proprietary. Several trends emerged
measurement answer. The tools used for from our analysis of the interviews which are
impact measurement depend on what is most outlined below:
appropriate for the investor or the portfolio
company. Impact measurement varies greatly, 1. Metric selection and use are
with multiple firms measuring a variety of inputs, not universal
processes, outputs or outcomes and different
combinations amongst these. While impact In India, metric selection and use is ad hoc
investors have a good understanding of logic and and done to fit services and products that are
theory of change models that offer standards of offered by investees, differing from investment
credibility, impact measurement relies entirely to investment, with few common indicators
on the discretion of individual organisations. and references. This part of the industry is
A lack of transparency around how and which beset with inefficiencies arising from poor
indicators are measured makes it harder to coordination, poor understanding and confusion
gauge or group standard approaches and over language. To inform action, impact investors
common practices of impact measurement. The need to robustly define impact. This essentially
expertise of fund managers also remains mixed means moving away from proprietary and
(and sometimes limited) in terms of assessing custom metrics and towards standardisation of
social and environmental impacts or returns. tools and approaches. This would lessen friction,
inform effective business design, provide inputs
for business improvement and provide clear-
4.2 TRENDS IN IMPACT cut impact measurement. Embedding such
MEASUREMENT IN INDIA practices also has the scope of informing public
O
policy design and program implementation in
ne common theme that emerged from the long run.
the interviews was the challenges that
impact investors and investees face in
conducting impact measurement. The
practice remains highly decentralised
The critical question that impact investors Experience of fund managers in dealing
need to ask themselves is whether inputs or with social and environmental returns and
activities conducted by portfolio companies are understanding pathways of social return also
done in a manner that actually delivers results, varies within the impact investment field.
yet this is difficult to do without knowing which Furthermore, since Indian impact investment
indicators are valid proxies for impact. Hence takes place over a wide range of asset classes,
it is crucial that the industry takes measures to ranging from traditional private equity or
build credible, standardised, and measurable venture capital-style investing, to more hands-
indicators of impact. It must also take advantage on incubator or accelerator guiding, incentive
of innovations and government data platforms frameworks differ across the market. Ultimately,
such as data.gov.in. what is required is a holistic understanding
of social impacts of investments. In doing so,
T
4.3 MODELLING POTENTIAL IMPACT considering the following factors might be helpful:
60
O’Flynn, P., & Barnett, C. (2017). Evaluation and impact investing: A review of methodologies to assess social impact (No. IDS
Evidence Report; 222).
61
Jackson, E.T. (2012) Unlocking Capital, Activating a Movement. Final Report of the Strategic Assessment of The Rockefeller
Foundation’s Impact Investing Initiative, The Rockefeller Foundation.
T
This involves modeling causal pathways from
activities to outcomes or impact as defined in
he first step in measuring impact Figure 24 below.
is defining a set of outcomes. This
helps identify the goals that programs
or businesses intend to achieve.
This stage should typically involve
B
social entrepreneurs use range from national
or regional social and economic indicators to
roadly impact measurement globally
micro-level surveys. They lay foundations and
has been characterised by three impact
provide guidance on fiscal and operational
measurement approaches: rating
motivations of participating or investing in
systems, assessment systems, and
enterprises and provide baseline assessments
management systems.62 Rating systems
of target populations that social programs and
could refer to Global Impact Investing Rating
enterprises aim to target. Impact investors
System (GIIRS) or Probability Risk and Impact
and portfolio companies can also consider
System (PRISM) ratings, assessment systems
conducting their own surveys. However, many
could refer to Social Returns to Investment
survey processes may not be valuable to
approaches and management systems could refer
respondents and impact measurement might
to IRIS and other catalogues. The prominence
require outside resources. Investment funds
of metrics, certifications and ratings has largely
irrespective of size should aim to build an
benefited the market by allowing investors to
understanding of how pre-defined and accepted
compare and accordingly invest in businesses by
impact indicators can be tied to activities that
assessing their potential impact.
portfolio companies conduct.
62
Olsen, S., & Galimidi, B. 2008. Catalog of Approaches to Impact Measurement: Assessing Social Impact in Private Ventures.
Social Venture Technology Group with the support of the Rockefeller Foundation.
63
Kitzmuller, L.,McManus, J., Shah, N.B., Sturla, K. (2019). Educate Girls development impact bond: first evaluation report. IDInsight.
64
Gustafsson-Wright, E., Boggild-Jones, I., Segell, D., & Durland, J. (2017). Impact bonds in developing countries: Early learnings
from the field. Center for Universal Education at Brookings, 81.
POLICY RECOMMENDATIONS
& CONCLUSION
A
s impact investors make investments
in key social issue areas and as some
5.1 RECOMMENDATIONS FOR
of these challenges become more IMPACT INVESTING IN INDIA
urgent in the public’s mind, bringing
1. The need for understanding willingness-
market incentives and entrepreneurial to-pay & opportunity costs
innovation to bear on solving them seems like
the next logical step. Hence, the need for building As impact investors broaden their portfolios
an impact investing ecosystem which promotes and investments across social sectors where
the measurement of impact and management of governments remain active participants, an
early learnings has never been so pressing. The understanding of the economics of those sectors
Indian impact investment market would benefit is imperative. In the case of key social areas
from systematic and credible information about such as health, education and in some cases,
the nature of investments and the social impact agriculture (given the economics in the long-
being realised across the sector. This information run) will always remain primary markets for the
will allow for certain risks to be better managed government. Basic economics dictates that free
and potential additional return to be captured. provision is never truly free as consumers and
beneficiaries constantly calculate opportunity
Over the course of this study, several trends and costs of accessing those services. By extension,
unique features of the Indian impact investing when the government provides access to
ecosystem have emerged. The chapters above schooling or healthcare facilities, even though by
provided key results and new developments definition these services remain free, all of them
of this upcoming field. Going forward to have hidden opportunity costs that consumers
mainstream impact investing in India, several internalise. The cost of spending time and energy
recommendations must be followed. This section on accessing a free service is only as valuable
summarises key results from our research and to a beneficiary as long as the next available
provides corresponding recommendations. alternative is not costlier than the internalised
These recommendations according to us, will opportunity cost of doing so. Awareness of these
help develop key competencies to deliver added types of costs is critical to the economic way
business and social value. Ultimately, as the of thinking as it can by extension help social
market for results-based and alternate financing entrepreneurs navigate and understand what
develops, government, policymakers and other alternatives must be presented to consumers.
stakeholders will wake up to the potential of this When investments or programs aim to attain and
sector. Impact investors and other stakeholders fill gaps where government services fall short,
must catalyse this evolution and push for understanding opportunity costs is imperative.
improvements that push boundaries, broaden
perspectives and strengthen impact theses. To better serve beneficiaries in these sectors
and design appropriate business models, a
simple understanding of willingness-to-pay
also offers some solutions. In the education
65
For more on education choice-models see: Arcidiacono, P., Muralidharan, K., Shim, E. Y., & Singleton, J. D. (2016). Valuing School
Choice: Using a Randomized Experiment to Validate Welfare Evaluation of Private School Vouchers; Gertler, P., & Glewwe, P.
(1990). The willingness to pay for education in developing countries: Evidence from rural Peru. Journal of public Economics,
42(3), 251-275 ; Carneiro, P., Das, J., and Reis, H. (2016). The Value of Private Schools: Evidence from Pakistan.
66
Ravi, S., Ahluwalia, R., & Bergkvist, S. (2016). Health and Morbidity in India (2004-2014).
I
mpact bonds offer a new way to advance with both financial returns and social impact.
cross-sector partnerships and introduce Philanthropy and government will continue to
innovative financing solutions to scale proven be vital sources of funding for the social sector.
social programs. Impact bonds operate at the Impact bonds can complement this funding by
intersection of three important trends: greater serving a niche purpose: providing predictable,
funder interest in evidence-based practices in long-term capital for evidence-based organisations
social service delivery; government interest in aiming to significantly expand their programs.
performance-based contracting; and impact
investor appetite for investment opportunities
67
Thornley, B., Wood, D., Grace, K., & Sullivant, S. (2011). Impact Investing: A framework for policy design and analysis. InSight at
Pacific Community Ventures & The Initiative for Responsible Investment at Harvard University.
One of the key lessons from the impact bond 4. Engaging impact bond champions
market globally has been the potential of
the contracting mechanism to highlight the The process of introducing results-based
collection and analysis of outcomes data. To financing programs like impact bonds has been
achieve outcomes, service providers must consistently challenging around the world due
understand where they are relative to their to lack of flexible structures and opaque change
goals and have the capacity to respond to new processes. Engaging impact bond champions
information to adapt interventions. Building this across stakeholders and ensuring ownership
data capacity within service providers may be early in the process is critical to the success
challenging: some may have more experience in of implementation. These internal champions
this area than others, and engaging in an impact offer critical early-stage support, including
bond in the first place requires a certain level of help navigating bureaucracy and establishing
capacity from service providers. While not every access to key stakeholders. For impact bonds to
service provider will be ready to contract on succeed, stakeholders have to be aligned on the
outcomes, the experience from the impact bonds defined outcomes of the bond. Since different
sector demonstrates the value of incorporating players have varying reasons and motivations
data into decision-making, and highlights the for being involved in impact bonds, tailored
potential benefits of improving data capacity communications and management are required.
68
Holden, J. & Patch, J. (2017). Does skin in the game improve the level of play: The experience of Payment by Results (PbR) on the
Girls Education Challenge (GEC) programme.
69
Ecorys UK. (2019). Evaluation findings of the DFID Impact Bond Program.
W
necessary to drive initial market impetus.
Internationally, legal frameworks have been seen
ith this report, we aim to provide
to limit or enable impact bond ecosystems. For
instance, the UK has one of the most developed a current and detailed overview
impact bond ecosystems in the world. The of the impact investment market
Centre for Social Impact Bonds was established and ecosystem in India. We
in the Prime Minister’s Cabinet Office as part of focus on the existing impact
the Social Investment Finance Team. In 2014, investment landscape of India and take a deep-
they also introduced legislation providing dive into sectors of interest and innovative
tax relief which applies to SIBs and other financing mechanisms. This report aims to
instruments and mechanisms (Social Investment serve as a public policy document for regulators,
Tax Relief) to funding social enterprises.70 industry and academics. Given the slow but
Another example comes from Australia and the steady evolution of these novel ways of funding
State of New South Wales that implemented development sectors, the study ultimately aims
a Social Impact Investment Policy in 2015. to build the evidence base and literature on
The legal framework there provided incentives impact investing in India.
for increasing social impact investment
transactions, removing barriers, growing the
market and building the capacity of the Our methodology is anchored on a primary
market actors.71 survey of the sector, including investors and
social entrepreneurs. Through the survey,
70
Wilson, K. E., Silva, F., & Ricardson, D. (2015). Social Impact Investment: Building the Evidence Base.
71
Wilson, K. E., Silva, F., & Ricardson, D. (2015). Social Impact Investment: Building the Evidence Base.
Percentage of
Development Sector(s)
total investments
a. Food and agriculture
b. Financial services (excluding microfinance)
c. Energy
d. Housing
e. Microfinance
f. Education
g. Healthcare
h. ICT
i. WASH
j. Infrastructure
k. Conservation
5. hat was the value of investments during the current financial year, and the previous financial year.
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Please specify total value.
a. Current financial year b. Previous financial year
Year: Year:
6. hat is your organisation’s average expected rate of return for investments across all development
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sectors? [Please tick 1 relevant option]
a. 0 (no return expected) d. 10-15%
b. 0-5% e. 15-20%
c. 5-10% f. Greater than 20%
7. Which states has your organisation funded programs in? [Please tick all relevant options]
C. Focus on education/health/agriculture/housing/skilling
1. hen did your organisation first start providing grants or investing in education/ health/ agriculture/
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housing/skilling? (Indicate start year)
2. Referring to the current financial year, what are your organisation’s activities in education/ health/
agriculture/housing/skilling?
Program/activity/investment name Total value of investment in current financial year
3. hat is your organisation’s expected rate of return for investments related to education/ health/
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agriculture/housing/skilling? [Please tick 1 relevant option]
a. 0 (no return expected d. 10-15%
b. 0-5% e. 15-20%
c. 5-10% f. Greater than 20%
4. Why did your organisation invest in education/health/agriculture/housing/skilling? Which of those
motivations would you say are the most important, and why? [Please tick 1 relevant option]
a. Financial return of investment c. Developing future stream of employable
b. Social Return/Social Impact workers for own organisation
5. How are investment priorities in education/health/agriculture/housing/skilling decided?
Who decides where, in which programming/sectoral areas? How?
What criteria does your organisation apply when selecting investment opportunities in education/health/agriculture?
6. When making decisions about funding priorities in education/health/agriculture/housing/skilling, does
your organisation coordinate with or consult with any other organisations or networks?
Which ones? Why?
7. What was the biggest challenge that your organisation faced when investing in education/ health/
agriculture/housing/skilling?
Why do you think that was so?
How did the organisation respond/what did it do to alleviate the challenge?
8. If you had to advise another private foundation/impact investor who wanted to invest in education/health/
agriculture/housing/skilling, what would you tell them?
E. Generic questions
1. What are the challenges that [ORGANISATION] has faced? [Please tick 1 relevant option in the column]
Significant challenge Moderate challenge Not a challenge
a. High-quality investment
opportunities (fund or direct)
b. Professionals with relevant skill sets
c. Innovative deal structure to
accommodate investor’ or
investees’ needs
d. Suitable exit options
e. Impact Measurement practice
f. Research & data on performance
g. Appropriate capital across the
risk/return spectrum
h. Government support for the
market
i. Political conditions or barriers
2. What are the challenges for the growth of the impact investing sector in India? [Please tick 1 relevant
option in the column]
F. Impact Bond Specific Questions [YOU MAY SKIP THIS SECTION IF YOU HAVE NOT
PARTICIPATED IN IMPACT BONDS]:
1. What motivated your participation in the current Impact Bond? [Please tick 1 relevant option]
a. Investment return d. Risk mitigation
b. Social return/social impact e. Innovation & flexibility
c. The partnership model
2. Can you highlight the key challenge you faced in the current impact bond you were involved in in India?
[Please tick 1 relevant option]
a. Legal hurdles d. Coordination amongst actors
b. Operational hurdles e. Political hurdles
c. Measurement of outcomes & results
3. How did you mitigate these challenges?
4. From your experience, what are the pros and cons of having multiple agents engaged in an impact bond?
[Please tick all relevant options]:
Cons:
a. Coordination c. Rift between return focusses versus impact
b. Differing motivations for participating focused players
d. Time to bring deal to a close
Pros:
a. Flexibility c. Impact & outcome focus
b. Knowledge sharing d. Innovation focus
5. What sort of investors and outcome funders do you think are more likely to invest in SIB/DIB projects in
India? And why?
a. International agencies d. Family offices & High-net-worth individuals
b. Impact investors e. Foundations
c. Corporates
6. Intermediary/outcome funder: To what extent did you perform a portfolio assessment / due diligence of
the potential investors, so as to assess financial capacity, risk appetite, ESG investment experience, etc.?
7. Investors: from your experience, what are the criteria did you consider when you calculate the return of the
investment on the specific impact bond?
8. [Independent evaluator/everyone]: How was data shared between stakeholders and how often was it
shared in the impact bond (you were involved with)?
9. [Independent evaluator/everyone]: How was (is) data on SIB/DIBs collected and managed in the impact
bond (you were involved with)? [NOTE: probe on points & frequency of collection; and data management
software used]
10. Do you see a market for impact bonds in India? What do you observe in the Indian context in order for
impact bonds to expand?
a. Necessary government regulation in place e. Sufficient number of and buy-in from
(Legal, procurement) outcome funders
b. Sufficient data & measurement capacity f. Sufficient knowledge of impact bonds
c. Supportive political economy & politics g. Sufficient contextual understanding
d. Impact investors ready to invest
G. Closing questions:
1. Do you have any suggestions for anyone else we should contact or speak with?
2. If we have further questions or need clarification, would you mind if we contact you again?
D. Closing questions:
1. Do you have any suggestions for anyone else we should contact or speak with?
2. If we have further questions or need clarification, would you mind if we contact you again?
72
The full excel catalogue or Metrics can be downloaded here - https://healthmarketinnovations.org/document/iris-health-metrics-ms-excel
In the Indian context, the government of India collects a variety of health statistics at the national,
state and district levels. This includes survey data, for example from the Annual Health Survey,
Rural Health Statistics of India, District-level Health Survey (DLHS), National Family Health Survey
(NFHS), Maternal Mortality Ratio, SRS Bulletin, Health Management Information Systems (HMIS)
and so on. Low-income users of government insurance schemes under Ayushman Bharat and the
Central Government Health Insurance Scheme (CGHS) can be useful proxies in the Indian context.
Impact investors can consider developing and reporting indicators in tandem with government or
public sector reporting. However, since the scope of impact investing may in many cases be broader
to include financial considerations, impact investors can be cognizant to this when developing and
building indicators off government checklists or reporting frameworks.
For the overall health care sector, key output and impact indicators can be divided into several key
categories: child health outcomes, maternal health outcomes, accreditation of facilities to improve
quality of care, and public and private health infrastructure tracking. Some examples of health
outcome indicators are summarised in Figure 27 below.
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https://thegiin.org/assets/GIIN%20Network%20Insights_ImpactMeasurementHealthcare_webfile.pdf
74
The nodal accreditation body that ensures quality of care across facilities is The National Accreditation Board for Hospitals
& Healthcare Providers (NABH). It is a constituent board of the Quality Council of India (QCI), set up to establish and operate
accreditation of healthcare facilities in India. Facilities receive accreditation if they demonstrate through an independent external
peer assessment of that organisation’s level of performance in relation to prescribed standards.
Advancements in technology have opened up new opportunities for the collection and analysis of
impact data, and service delivery organisations are increasingly turning to tech platforms and apps
to support the tracking of outcomes. Technology offers the potential to collect and analyse data in
real-time, and to provide feedback loops to adapt service delivery. In the education sector, tools such
as Tangerine, developed by RTI international, can be used to collect learning assessment data on
tablets, and provide real-time analysis to decision-makers.75
Some examples of education indicators that industry and governments can use are summarised in
table 28 below.
Table 28: Example of education indicators
Number of schools, school infrastructure & learning resources:
••Number of schools
••Number of books in library
••Number of computers in functional conditions
••Availability for textbooks for students
••Availability of charts, maps
School enrollment:
••The Gross Enrollment Ratio
••No. of girls or excluded children enrolled
••Dropout rates reduced
Teacher training:
••Whether teacher took part in any teacher trainings
••Whether school principal took part in any type of trainings
Learning outcomes:
National and international learning assessments tests exist across the board offering different
levels of external validity. Some examples of these tests include:
••- The National Achievement Survey (NAS)
••- Trends in International Mathematics and Science Study (TIMSS)
••- The Progress in International Reading Literacy Study
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https://www.rti.org/impact/tangerine-mobile-learning-assessments-made-easy
Improving education outcomes in four key subjects – english, mathematics, science & social science
has been measured and assessed by the government and non-profits such as Pratham, Care India
and many others. Some examples of commonly accepted external tests include:
The National Achievement Survey (NAS) is a government level survey conducted for classes 3,5 and
8 in government and government aided schools. It tests English and mathematics in grade 3 and 5
and mathematics, language, sciences and social sciences in grade 7.
The Annual Survey of Education Report (ASER) is an India-wide survey of learning levels of primary
school students.
TIMSS (Trends in International Mathematics and Science Study) is a large-scale assessment that is
conducted in grade 4 and 8 testing students’ achievements in mathematics & science. TIMSS has
been developed the International Association for the Evaluation of Educational Achievement (IEA).
The Progress in International Reading Literacy Study is designed to measure children’s reading
literacy achievement for fourth graders. It is also conducted by the International Association for the
Evaluation of Educational Achievement (IEA).
Impact investors and social enterprises can also use proprietary methods of evaluation across
subjects these could test whether the student recognises and writes letters, deduces word meaning,
reads and writes sentences and comprehends text for language or english skills. And include some
level of testing for pre-math skills, basic arithmetic, geometry, fractions, concepts and applications of
algebra, problem solving and basic numeric competency for mathematics.
Government indicators
AGRICULTURE
To measure the social, environmental and economic impact of investments in enterprises that are
active in agricultural value chains, requires an understanding of context, target populations served
and product or service being offered. Most impact investments within the food agriculture space
in India offer one or more of the following services – linking producers and farmers to markets by
increasing yield, profitability or production and bringing sustainable products and practices. In this
view, indicators in the agriculture space can cover one or more of the following larger impact metrics
as summarised in table 29.
An IRIS-member-driven initiative known as the Finance Alliance for Sustainable Trade (FAST)76
FAST has developed a Shared Impact Assessment and Measurement Toolbox (SIAMT). The toolbox
provides a set of priority indicators developed from IRIS indicators for reporting and data collection
for small and medium enterprises in the food and agriculture space. The initiative focusses on
data collection and analysis to ensure the effectiveness and responsible growth of lending to and
investment in sustainable SMEs and value chains. The toolbox provides a guide on units of measure
(hectares, acres, units sold, units produced, hours, kgs, tons) that organisations and impact investors
can use.
Yield: Eg: Units/Volume Produced Income: Eg: Total Payments to farmers (supplier individuals), Sales
Revenue Production: Eg: Land Directly & Indirectly Controlled: Cultivated Profitability: Eg: Cost of
Goods Sold.
PRISM (Portfolio, Risk, Impact, and Sustainability Measurement) is a fund performance assessment
platform developed by Intellecap specifically for India. It is a rating tool which is built on IRIS
indicators. PRISM integrates Fund Performance (Impact Investors) with Portfolio company impact
(Social Enterprises/Investees) and provides guidance on weights and scores. Investment funds
receive FCIS Score (Fund Sustainability, Intent, and Contribution). This includes tracking fund
sustainability, number of investments made, track record of team, percentage stake in investees and
so on. Portfolio companies receive a PIA Score (Portfolio Impact Assessment) which tracks sector-
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https://iris.thegiin.org/users/profile/finance-alliance-for-sustainable-trade-fast
Economic value is attached to social outcomes to deem whether investments or social enterprises
are beneficial and having intended impacts. Indicators are developed which articulate social benefits
or impact and costs or inputs are assigned monetary value with the assistance of these indicators.
The SROI includes a ratio aiding a narrative of the program and investment. The ratio is calculated as follows:
Costs: Estimating the costs of an intervention for all stakeholders involved provides essential
information about the necessary budget, as well as implications for scaling-up. These include
understanding thefull costof the investment from the funders or impact investors’ perspective, and
the cost of conducting the program. Impact investors may compare costs to their own detailed cost
77
For an example of an organisation using SROI, See Appendix 4.
Benefits: While calculating costs may be facilitated through other pilot programs and experience,
estimating social benefits remains challenging. In addition to measurable outcomes and outputs,
qualitative social impacts can also be achieved. While governments may be interested in both types
of benefits, from an impact investor’s perspective it is important to stress this distinction within the
CBA. Also, short to medium term and long-term benefits need to be distinguished, thus there needs
to be a common understanding of the time horizon to be considered and an agreed upon method to
extrapolate long- term projections, if applicable.
Principles for Responsible Investment (PRI) is a framework that guides institutional investors to
consider matters of environmental, social and corporate governance (ESG). In 2005, Kofi Annan
standardised six principles for responsible investment in which ESG issues would be incorporated
into investment practices. PRI is a voluntary network, which currently has over 1700 signatories, all of
which are large-scale investment institutions.
@BrookingsIndia
Brookings.India
Brookings India
www.brookings.in