4 min read
Summary Points:
- In India, the mandatory CSR policy has accelerated corporate giving, leading to more investment in the social sector.
- By impact investing, donors/investors make financial return which helps them recycle their capital to make a very strong impact.
- India is the impact investing capital of the world and there are terrific opportunities for both social impact and financial returns across a variety of sectors.
- How has philanthropy changed in India in the recent years?
Philanthropy has changed significantly in recent years. A few key changes are: 1) the corporate social responsibility (CSR) requirement as part of the 2013 Companies Act that requires most corporates to give 2% of their profits to charities, 2) more Indians have become increasingly wealthy and also aged – two trends that will generally push people to more giving and 3) technology has made it easier to make donations with the click of button.
- Why should we move from plain grant making to strategic social investing with the new
financial tools?I do think there is a large opportunity to make a big impact through impact investing. Many social businesses have both proven to have a very strong social impact and to provide attractive financial returns to investors. By making a financial return, or at least getting their money back, investors/donors are able to recycle their capital to make a very strong impact. At the same time all social problems cannot be solved by profitable business models, so philanthropy and non-profits are still very critical.
- While moving from grant making to social investing, what are the legal and governance issues
that need to be addressed by organizations?A social business typically establishes itself as a private limited company, whereas non-profits are often trusts, societies or section 8 companies. Corporate governance standards are typically highest in for profit companies. Investors, especially institutional investors, typically takes seats on the board of directors of companies and insist on high corporate governance standards which would include independent directors and highly regarded auditors.
- What are the challenges faced while making the shift to strategic social investment?
Strategic social investors typically will start focusing on the financial returns offered by the investment in addition to the social impact. While it is easier to calculate a financial return than a social impact return, it is often difficult to predict future cash flows and financial returns. It is also critical to consider who else is investing in the social business alongside you. These investors will have their own objectives and timelines, and it is critical that all stakeholders (management, team, clients, shareholders, etc) are aligned.
- What are the opportunities that are available in India for strategic social investment?
The opportunities are plentiful. India is the impact investing capital of the world. There are terrific opportunities for both social impact and financial returns across a variety of sectors including education, health care, women empowerment, financial inclusion, sanitation, water, renewable energy, agriculture and many other sectors. These opportunities also range from less than Rs. crore to hundreds of crore.
