Impact investors switch focus to agriculture, health and education

47% of the $10.7 bn invested between 2010 & 2019 has come in last two years

Impact investors in India are dramatically shifting their focus from the financial services sector to agriculture, health, education, energy and technology for development, among others.

The growing attraction for investors of social enterprises for profit as a whole can be gauged from  the fact that nearly 47 per cent of the $10.7 billion invested between 2010 and 2019 by impact investors has come in the last two years alone.

As much as 58 per cent of the $5 billion spent by impact investors in the last two years of 2018 and 2019 was in the non-financial sector.

Impact investment refers to investment made in companies that offer a beneficial and measurable social or environmental impact alongside a financial return. Impact investing falls somewhere on the  continuum between strategic philanthropy at one end to socially responsible or ESG commercial investing on the other.

The money could come from VC and PE funds (which may not have an impact criterion), from impact investors such as Omidyar Network, or from club deals where PE funds combine with impact investors.     

The scale of the shift was highlighted in a report by the Impact Investors Council, which looked at investments in social enterprises in 2010. It found that 76 per cent of the $323 million investments were made in the financial services sector that year such as micro-finance institutions and non-MFIs.

Yet, in 2019 this sector’s share was down to 43 per cent. The total investment made in 2019 was $2.6 billion.

As a result of this change, the cumulative investment through the decade of impact investing (2010-19) in the non-financial sector of $5.2 billion is moving closer to the $5.5 billion that has been invested in the financial sector. In the financial sector, 51 per cent of the investments have been made in micro finance companies. The key areas where money has come into the non-financial sector include agriculture (22 per cent), health (21 per cent), technology for development (19 per cent), education (17 per cent), and energy (5 per cent).

Investment in the agri enterprises sector which took off only in 2015 saw investments of $328 million in 2019. This has allowed as many as 181 companies which include Cropin, Gramophone, Waycool, and Arya to improve the productivity, and increase the incomes of, 18 million farmers.

Eighty per cent of the deals have been in the early stage with strong commercial investor interest in this sector. Conventional VC and PE funds constituted over 53 per cent of the interest while the rest came from impact investors, including club deals.

In healthcare, as many as 85 social enterprises which include quality diagnostic, primary and secondary health care, medication and health finance services to over 34 million people have attracted investments. They include Drishti, Affordplan, and Be Well Hospitals.

Investments in this sector jumped dramatically in 2019 to $467 million from a mere $171 million in 2018 and 55 per cent of the money came from traditional VCs and PEs. In the education sector also, the interest from investors has risen sharply in the last two years. Nearly 60 per cent of the $880 million invested in the entire decade was invested in 2018 and 2019. In this sector, however, the bulk of the money has come from impact investors who contributed 38 per cent of the funds, while club deals accounted for another 33 per cent.               

The tech for development sector, which is building new products such as vernacular content and  SME technology to mention only two areas, has seen over $372 million flow in during the last two years, an amount that is equivalent to nearly a third of the total raised in the decade. 

At a macro level, impact investment has grown by 26 per cent CAGR in the last decade (2010-2109) deploying $10.8 billion in 586 social enterprises in the country. The money put in has impacted the lives of over 490 million Indians. 

In 2019, 152 social enterprises got funds of over $2.6 billion — a growth of over 13 per cent over the previous year. The average funding for each enterprise went up from $13 million in 2018 to  $17 million in 2019.