Philanthropy and the private sector are looking to social impact investing as a new approach to international development. Private equity is experimenting with innovative models that engage the nonprofit and public sectors with market investments that make a profit and support a public good.
Overview
This approach offers the promise of sustainability and is an alternative to traditional non-governmental organization (NGO) models of programming where long-term sustainability is often in question. In these models, a for-profit company can create fair paying jobs that also generate company revenue. Knowing that the costs and risks of doing business in the developing world can be prohibitive, the not-for-profit sector should ask what services they can provide (e.g., workforce development training, curriculum, mentoring) that will, in turn, reduce operations costs for the for-profit endeavor and increase the return on investments. Furthermore, what assurances can the for-profit establish that places a premium on social impact in addition to a return on investment (e.g., fair wages, health care, daycare, education).
Ever since the financial crisis of 2008, global capital markets have found it difficult to acquire fiscally secure assets. This has pushed the world of finance into pursuing new capital ventures with low to medium risk, and seeking overall to combine financial returns with social and environmental progress.'|n a concept commonly referred to as impact investing, investors in growing capital markets are starting to look for ethical funds—also known as socially responsible investments (SRI) promote a social good in addition to financial gains.' These funds have the potential to change the face of philanthropy in the developing world. Yet, unlike philanthropy, impact investing primarily focuses on returning a profit, but with a socially responsible investment. By investing in companies that provide for the social good, impact investing is “designed to serve a larger social purpose: providing underserved populations with the resources that they need in order to improve their lives. By delivering the products and services that empower the poor to lift themselves out of poverty, impact investing can scale solutions quicker than traditional philanthropy.
